Economy
FSDH Urges MPC to Ease Monetary Policy to Stimulate Growth
By Modupe Gbadeyanka
As the Central Bank of Nigeria (CBN) prepares to hold its first Monetary Policy Committee (MPC) meeting of 2018 next week, one of the leading investment firms in the country, FSDH Research, has advised the committee to consider cutting its rates so as to “boost credit creation and stimulate economic growth.”
In a report released on Thursday, analysts at FSDH said they would expect the MPC to consider a drop in either the Monetary Policy Rate (MPR), which is currently at 14 percent, or the Cash Reserve Ration (CRR), presently at 22.50 percent.
The investment company noted that although the GDP growth rate in Nigeria improved further in Q4 2017 at 1.92 percent from 1.40 percent in Q3 2017, the recovery was still very fragile, emphasising that additional monetary policies were required to stimulate a broad-based growth.
“FSDH Research’s analysis of the growth pattern in 2017 shows that two sectors; agriculture and, mining and quarrying were the major drivers of growth. They were the two sectors out of the six largest sectors of the Nigerian economy that recorded growth in 2017. Other leading sectors which are trade, information and communication, manufacturing, and real estate all contracted. Thus, the need for monetary policy easing,” it said.
FSDH Research said looking at the developments in the international market; the economic outlook in the major advanced countries is strong in the short-term to medium-term, necessitating monetary policy normalisation.
It said the outlook of the GDP growth rate remains strong, the unemployment rate is low in most regions and should remain low in the short-term, while inflation rate is trending up.
The Federal Open Market Committee (FOMC) of the United States (U.S) Federal Reserve (The Fed) increased the Federal Funds Rate (Fed Rate) at its March 2018 meeting. The Fed increased the Fed Rate to 1.50 percent – 1.75 percent from 1.25 percent -1.50 percent.
“FSDH Research expects that the FOMC will increase the Fed Rate to 2.25 percent – 2.50 percent by year end. The increase in the interest rate should lead to increase in the yields on the fixed income securities in the advanced markets, with the attendant possible increase in capital flights from the emerging markets,” the report said.
According to FSDH, the increase in the crude oil price and favourable crude oil production in Nigeria have increased capital inflows and also led to favourable trade balance. Consequently, the country’s external reserves (30-Day Moving Average) increased substantially in the last five months, growing to $46.04 billion as at March 26, 2018.
It said this provides additional short-term stability for the value of Naira.
However, FSDH Research recognised the vulnerabilities of the Nigerian economy to the adverse movements in the crude oil prices. Thus the need to stimulate other non-oil sectors to reduce these vulnerabilities, it said.
Continuing, FSDH Research noted that the current strategies of the Debt Management Office (DMO) to reduce the interest expense on the debt of the Federal Government of Nigeria (FGN) were working.
It pointed out that the latest debt figures show that the interest expense on the local debt has dropped in the last few months.
The investment firm also observed a relative increase in the revenue accrued to the FGN from the Federation Account Allocation Committee (FAAC). These two factors have led to a drop in the ratio of the interest expense to the FGN FAAC revenue which stood at 20% in December 2017. Thus the yields on the fixed income securities in the market have dropped substantially in the last six months, it said.
Although FSDH Research said it believes the yields on the NTBs may drop further, it is of the view that the yields on the FGN Bonds may move up gradually from the current level as the FGN starts to borrow to fund the 2018 budget.
It said despite the drop in the yields on fixed income securities in Q4 2017, Nigeria recorded the highest Foreign Portfolio Investments (FPIs) inflows in 2017 during the last quarter.
This, it explained, implies improving confidence on the short-term outlook of the Nigeria economy.
FSDH Research also noted that the growth in money supply as at December 2017 was lower than the CBN’s target for the year.
The broad money (M2) grew by 2.62 percent, lower than the target of 10.29 percent, while the net domestic credit contracted by 2.95 percent as against the target of 17.93 percent. The net credit to the private sector grew marginally by 1.40 percent, lower than the target of 14.88 percent.
It pointed out that the need to curb high inflation rate and maintain stability in the foreign exchange market were the main reasons for the contractionary monetary policy.
FSDH Research said it believes the inflation rate may drop to single digit mid-year, while the exchange rate should remain stable in the short-term.
“Therefore, there is a need for monetary policy easing to boost credit creation and stimulate economic growth,” it averred.
Concluding, FSDH Research said looking at the short-term outlook of the Nigerian economy, it believes the MPC should begin monetary policy easing to signal the end of its monetary policy tightening cycle.
The CBN will hold its first MPC meeting on Tuesday, April 3 and Wednesday, April 4, 2018.
At its last meeting in November 2017, the committee maintained the MPR at 14 percent, with the asymmetric corridor at +200 and -500 basis points around the MPR; and the CRR and Liquidity Ratio (LR) left at 22.50 percent and 30 percent respectively.
By Adedapo Adesanya
The NASD Over-the-Counter (OTC) Securities Exchange closed flat on Wednesday, August 5, as the market witnessed weaker trading activity with only two deals executed.
In the midweek session, the volume of securities exchanged by investors dropped 99.9 per cent to 802 units from the 1.6 million units recorded on Tuesday. The value of securities further decreased by 99.6 per cent to N208,240 from the preceding session’s N47.6 million, and the number of deals significantly went down by 93.9 per cent to two deals from the 33 deals recorded a day earlier.
Great Nigeria Insurance (GNI) Plc remained the most traded stock by value on a year-to-date basis, with 3.4 billion units worth N8.4 billion, followed by Infrastructure Credit Guarantee (Infracredit) Plc with 2.3 billion units sold for N6.5 billion, and Central Securities Clearing System (CSCS) Plc with 76.9 million units transacted for N5.5 billion.
GNI Plc was also the most active stock by volume on a year-to-date basis, with 3.4 billion units exchanged for N8.4 billion, followed by Infracredit Plc with 2.3 billion units traded for N6.5 billion, and Resourcery Plc with 1.1 billion units valued at N415.7 million.
There were no price gainers or losers yesterday.
As a result, the market capitalisation stood unmoving at N2.739 trillion, while the NASD Security Index (NSI) remained unchanged at 4,563.96 points.
By Adedapo Adesanya
The Naira slid against the US Dollar by N2.28 or 0.17 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Wednesday, August 5, to N1,363.85/$1 from N1,362.55/$1.
The local currency also declined against the Pound Sterling in the official market during the session by N5.97 to close at N1,837.38/£1 compared with Tuesday’s closing rate of N1,831.41/£1, and against the Euro, it crashed by N6.54 to quote at N1,575.25/€1 versus the preceding session’s N1,568.71/€1.
But at the black market, the Nigerian Naira traded flat against the greenback yesterday at N1,400/$1, and also remained unchanged at the GTBank FX desk at N1,373/$1.
The Central Bank of Nigeria (CBN) says rates have narrowed to below two per cent, while the country’s external reserves have risen above $52.5 billion, reflecting the impact of its ongoing monetary and foreign exchange reforms.
CBN Governor Yemi Cardoso, represented by the Acting Director of Corporate Communications and Investor Relations, Mrs Hakama Sidi-Ali, disclosed this on Tuesday during the CBN Fair in Gombe. He noted that reforms introduced since 2023 had significantly reduced the disparity between the official FX market and the parallel market.
“The Naira continues to strengthen, with the spread between official and Bureau de Change rates now below two per cent,” he said, adding that reserves at $52.5 billion were supported by sustained inflows and renewed investor confidence in the economy.
Interbank FX transactions slid as weaker market activities dropped total Dollar volume exchanged to $75.35 million, a 51.8 per cent decline from $156.23 million in turnover quoted at the previous close.
The deals at the NFEM window also fell as data from the central bank put Wednesday’s quote at 82 from 139.
In the cryptocurrency market, major were down as global risk sentiment softened as a key world equity index slipped and chipmakers fell.
The MSCI All Country World Index snapped a five-day run to fall 0.2 per cent as chipmakers retreated on both sides of the Pacific. South Korea’s Kospi, a bellwether for the AI trade, dropped 4.4 per cent.
Ripple (XRP) depleted by 1.7 per cent to $1.05, Binance Coin (BNB) decreased by 1.0 per cent to $594.87, Cardano (ADA) depreciated by 0.9 per cent to $0.1884, TRON (TRX) shrank by 0.2 per cent to $0.3261, Solana (SOL) crumbled by 0.1 per cent to $74.00, and Dogecoin (DOGE) went down by 0.1 per cent to $0.0697.
On the flip side, Ethereum (ETH) gained 2.3 per cent to trade at $1,911.41, and Bitcoin (BTC) rose by 0.8 per cent to $64,759.28, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
By Dipo Olowookere
The domestic stock exchange rebounded by 0.05 per cent on Wednesday on the back of renewed bargain-hunting by investors, though the level of activity waned.
After bleeding for a few days, the Nigerian Exchange (NGX) Limited heaved a sigh of relief yesterday, as the All-Share Index (ASI) gained 109.41 points to close at 244,912.24 points compared with the previous day’s 244,802.83 points, and the market capitalisation garnered N71 billion to settle at N158.087 trillion versus Tuesday’s N158.016 trillion.
Business Post reports that despite the rebound recorded by Customs Street at midweek, the market breadth index remained negative, as there were 20 price advancers and 29 price decliners, implying bearish investor sentiment.
Linkage Assurance appreciated by 9.94 per cent to N1.77, AVA Capital rose by 9.55 per cent to N10.90, Fortis Global Insurance advanced by 7.69 per cent to N2.80, McNichols gained 7.34 per cent to finish at N5.85, and Coronation Insurance surged by 5.51 per cent to N2.49.
Conversely, Honeywell Flour depreciated by 9.94 per cent to N16.30, PZ Cussons gave up 9.94 per cent to trade at N74.75, Zichis crashed by 9.74 per cent to N20.76, Learn Africa slipped by 9.62 per cent to N9.40, and Neimeth tumbled by 8.33 per cent to N8.25.
The busiest equity was FCMB, with a turnover of 369.2 million units valued at N4.1 billion. Chams transacted 46.7 million units worth N201.8 million, First Holdco transacted 43.5 million units for N5.7 billion, Access Holdings sold 29.8 million units worth N778.0 million, and Linkage Assurance exchanged 19.6 million units valued at N33.5 million.
At the close of transactions, market participants bought and sold 824.1 million units worth N25.5 billion in 48,114 deals, in contrast to the 1.6 billion units sold for N28.7 billion in 54,160 deals a day earlier, showing a shortfall in the trading volume, value, and number of deals by 48.49 per cent, 11.15 per cent, and 11.16 per cent, respectively.
