Global output growth remained weak in the second half of 2015 as evidenced by the decline in projected output growth to 3.1 per cent, lower than the 3.4 per cent recorded in 2014.
The decline was attributed to the general slowdown in economic activities in emerging markets and developing economies, China’s rebalancing of economic activities away from investment and manufacturing to consumption and services, declining oil and other commodity prices and the gradual tightening of US monetary policy.
Nigeria’s output growth declined to 2.47 per cent in the review period. Broad money supply increased, while the gross official reserves fell. The average exchange rate depreciated at the inter-bank and BDC segments. Year-on-year inflation rate edged up slightly to 9.6 per cent in the review period.
In the second half of 2015, average interest rates fell in response to the liquidity situation in the economy. Broad money grew by 5.90 per cent. Also, narrow money (M1) increased by 24.14 per cent at end-December 2015, as against the 5.25 per cent decline at the end of the first half of the year.
The Monetary Policy Rate (MPR) was reduced to 11.00 percent and the symmetric corridor of 200 basis points around the MPR was made asymmetric at + 200 basis points and -700 basis points for standing lending and deposit facilities, respectively. In reaction, rates at the inter-bank funds market fell in the review period.
These measures were to encourage banks to lend to the real sector of the economy. The intervention measures of the CBN were also sustained to enhance inclusive growth in the real sector. The quality of assets in the banking sector declined marginally in the second half of 2015 compared to the position at end-June 2015.
The decline in asset quality was attributed to the unfavourable macroeconomic environment in the review period. Also, capital adequacy weakened during the period. This was attributable to the fall in the level of banks’ general reserves.
A stress test of the banking industry revealed that, generally, it remained relatively resilient, although some banks were sensitive to credit concentration and interest rate risks, which did not pose systemic threats to the industry.
The Bank continued to process customers’ complaints with a view to enhancing public confidence in banks. The payments system witnessed significant developments with the implementation of the Bank Verification Number (BVN) Scheme.
The Treasury Single Account (TSA), an initiative aimed at reducing the cost of government borrowing, better management of cash resources, and harmonized government receipts and payments, was fully implemented.
Generally, the global economy is expected to recover slightly in 2016, despite the prospect of rising interest rates in the US and economic slowdown in China.
However, the recovery could be dampened by possible decline in commodity prices, which would further constrain growth in commodity exporting countries.
In Nigeria, the NBS projects a slight recovery in 2016. Economic activities are expected to pick up as the effects of government reform policies gradually impact on the real sector. In the foreign exchange market, the spread between the interbank and BDC rates is expected to narrow, as stability is restored in the market.