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The whole world, including Nigeria, awaits the US Fed decision in September
Nigeria is part of the global financial community that is awaiting the outcome of the US Fed meeting to be held in September. The consensus view is that there will be an interest rate cut, though opinions differ on the magnitude. While some analysts believe that rate will be cut by 25 basis points (bps), others anticipate a 50-bps rate cut. Regardless, an interest rate cut will weaken the US dollar and, by implication, strengthen the naira, which is currently trading at N1,625/$. Additionally, the global price of oil and other export commodities will rise, improving Nigeria’s trade balance and bolstering revenue. This is coming at a time when Nigeria has a debt problem. With a weakened US dollar potentially easing external debt repayment pressures, Nigeria could see some relief in servicing its debt obligations.
Naira is set for a rebound
While a possible rate cut by the US Fed offers positive implications for Nigeria, efforts by the CBN to boost FX liquidity are expected to further support the naira in the coming weeks. A $500 million diaspora bond has been issued to boost remittances and attract investment. The proceeds from the bond issuance, coupled with the CBN’s reintroduction of the retail Dutch auction system, which is expected to hold another auction in September, will stabilize the naira. A sustained naira stability will ease price pressures, with inflation slowing throughout the remainder of 2024. The slowdown in inflation will be supported by the harvest season, base effects, and an import duty waiver.
It’s not yet Uhuru
Despite the projected deceleration in inflation, we expect the MPC to maintain a tightening stance in its next meeting in September. This could pose a threat to the country’s growth prospects. The recently released GDP report showed an expansion of 3.19% compared to 2.98% in Q1’24 and 2.51% in Q2’23. However, the stark reality is that 78% of the 46 economic activities tracked by the NBS experienced either a slowdown or contraction during the quarter. This widespread underperformance is particularly concerning as it involves “labour elastic” sectors—industries where changes in economic activity have substantial impact on employment levels.
The slowing sectors, including agriculture (1.41% vs. 1.5% in Q2’23), trade (0.71% vs. 2.41% in Q2’23), and manufacturing (1.28% vs. 2.20% in Q2’23), are struggling with deep-seated structural challenges. These persistent issues not only hinder sectoral performance but also cast a long shadow over job creation and economic stability.
In this latest edition of Whispers, the FDC Think Tank takes a deep dive into recent economic developments and their impact on your business and corporate strategy.
Enjoy your read!
