Economy
MPC Meeting: Experts Predict Rate Cut to 13%
Modupe Gbadeyanka
As the Monetary Policy Committee (MPC) meeting of the Central Bank of Nigeria (CBN) commences today, experts at FSDH Research are optimistic that the committee will likely support the reduction in the Monetary Policy Rate (MPR) by 50 basis points.
At its last meeting on May 20 and 21, 2019, the MPC retained the benchmark interest rate at 13.50 percent, and retained the asymmetric corridor of +200/-500 basis points around the MPR.
It also left both the Cash Reserve Ratio (CRR) at 22.5 percent; and the Liquidity Ratio (LR) at 30 percent.
Within the last few weeks, the CBN has issued two important directives to banks within geared towards stimulating lending to the real sector of the economy to boost economic activity.
In its report, FSDH Research said members of the MPC will likely vote to reduce the policy rates because an increase was not an option under the current economic situation in the country.
It said the short-term outlook of the inflation rate (which points to a declining trend, other things being equal), stability in the foreign exchange rate, and the drive of the Federal Government of Nigeria (FGN) and the CBN to stimulate growth in the economy all support a rate cut.
The investment firm said such a cut would add weight to the implementation of the CBN’s 5-year strategic plan.
“FSDH Research anticipates a 50 basis points reduction in the Monetary Policy Rate (MPR), as well as a possible adjustment to the asymmetric rates around the MPR,” the report said.
It noted that developments in the global economy also favour an interest rate cut in the short-term and expects the Federal Open Market Committee (FOMC) of the US Federal Reserve System to lower the Federal Funds Rate by 0.25 percent at its next meeting later this month.
The firm explained that this would aim to provide additional incentive for the global economy following signs of economic slowdown.
In the June 2019 edition of its Global Economic Prospects (GEP), the World Bank downgraded the global growth forecast for 2019 by 0.3% to 2.6 percent. The downward revision reflects weaker-than-expected international trade and investment during the first half of the year. The growth in sub-Saharan Africa was also significantly lower than expected. The 2019 growth forecast for Nigeria is now 2.1%, lower than the previous forecast of 2.2 percent.
According to FSDH Research, the short-term forecast indicates that the inflation rate in Nigeria may continue to trend downwards until October 2019. This is based on the assumptions that there will be no adjustments to the electricity tariff or the pump price of Premium Motor Spirit (PMS).
“Although we stress that there is a need for these prices to increase, the FGN may not be keen to an adjustment in the short-term.
“Should the increase take place, our projections show that it will shift the inflation curve by 2.5 percent. The impact of the implementation of the new National Minimum Wage on the inflation rate is minimal. Implications of the foregoing are that there may not be pressure on the MPC to raise the policy rate with a view to taming inflationary pressure.
“The CBN is already adopting moral suasion to encourage investment in agriculture to boost production and yields in an attempt to douse a spike in food prices which would place upward pressure on the inflation rate,” it said.
A major pressure point for the FGN at the moment is the high interest expenses relative to FGN revenue. Although the major cause of this problem is government’s low revenue, the low interest rate environment since January 2019 has helped the Debt Management Office (DMO) to raise cheaper debt for the government than before. Unless there is internal or external shock, CBN policies may continue to favour a low interest rate. This may also stimulate lending to non-oil sectors of the economy, provided there are complementary fiscal policies which will improve the business environment.
The negative impact of low growth in the global economy on the price and demand of crude oil may have a negative impact on the exchange rate.
“However, the current external reserve position at over $45billion may provide short-term stability for the exchange rate. In its July 2019 Short-Term Energy Outlook (STEO), the Energy Information Administration (EIA) revised downwards its forecast for Brent crude oil price to $66.51/b in 2019. The data shows that the price of crude oil fell from a peak of $77.06/b in May 2019 to $64.12/b in June.
“We also note that an increase in policy rate may not address the crude oil price. Intervention by the
Organization of the Petroleum Exporting Countries (OPEC) in the way of a production cut may also provide short-term stability for the crude oil price.
“While FSDH Research notes there are a number of structural challenges in the economy at the moment that can reduce the effectiveness of monetary policy, there are strong indications that the MPC members may vote to reduce the MPR to 13 percent.
“The market should not be surprised if the MPC also announces a reduction in the rate of the Standing Deposit Facility (SDF) of the banks with the CBN. It is possible that the MPC will maintain the Liquidity Ratio and CRR at the current level,” the report said.
By Dipo Olowookere
The local stock market firmed up by 1.13 per cent on Friday as appetite for Nigerian stocks remained strong.
Investors reacted well to the 2026 budget presentation of President Bola Tinubu to the National Assembly yesterday, especially because of the more realistic crude oil benchmark of $64 per barrel compared with the ambitious $75 per barrel for 2025. This year, prices have been between $60 and $65 per barrel.
Business Post observed profit-taking in the commodity and energy sectors as they respectively shed 0.14 per cent and 0.03 per cent.
But, bargain-hunting in the others sustained the positive run, with the consumer goods index up by 3.82 per cent.
Further, the industrial goods space appreciated by 1.46 per cent, the banking counter improved by 0.08 per cent, and the insurance industry gained 0.04 per cent.
As a result, the All-Share Index (ASI) increased by 1,694.33 points to 152,057.38 points from 150,363.05 points and the market capitalisation chalked up N1.080 trillion to finish at N96.937 trillion compared with Thursday’s closing value of N95.857 trillion.
A total of 34 shares ended on the advancers’ chart, while 24 were on the laggards’ log, representing a positive market breadth index and bullish investor sentiment.
Austin Laz gained 10.00 per cent to close at N2.42, Union Dicon also jumped 10.00 per cent to N6.60, Tantalizers increased by 9.80 per cent to N2.69, Aluminium Extrusion improved by 9.78 per cent to N12.35, and Champion Breweries grew by 9.71 per cent to N16.95.
Conversely, Sovereign Trust Insurance dipped by 7.42 per cent to N3.87, Royal Exchange lost 6.84 per cent to trade at N1.77, Omatek slipped by 6.84 per cent to N1.09, Eunisell depreciated by 5.88 per cent to N80.00, and Eterna dropped 5.63 per cent to close at N28.50.
Yesterday, traders transacted 1.5 billion units worth N21.8 billion in 25,667 deals compared with the 839.8 million units sold for N32.8 billion in 23,211 deals in the preceding session, showing a surge in the trading volume by 76.61 per cent, an uptick in the number of deals by 10.58 per cent, and a shrink in the trading value by 33.54 per cent.
By Adedapo Adesanya
Three stocks stretched the bearish run of the NASD Over-the-Counter (OTC) Securities Exchange by 1.21 per cent on Friday, December 19, with the market capitalisation giving up N26.01 billion to close at N2.121 billion compared with the N2.147 trillion it ended a day earlier, and the NASD Unlisted Security Index (NSI) dropping 43.47 points to 3,546.41 points from 3,589.88 points.
The trio of FrieslandCampina Wamco Nigeria Plc, Central Securities Clearing System (CSCS) Plc, and NASD Plc overpowered the gains printed by four other securities.
FrieslandCampina Wamco Nigeria Plc lost N6.00 to sell at N54.00 per unit versus N60.00 per unit, NASD Plc shrank by N3.50 to N58.50 per share from N55.00 per share, and CSCS Plc depleted by N2.91 to N33.87 per unit from N36.78 per unit.
On the flip side, Air Liquide Plc gained N1.01 to close at N13.00 per share versus N11.99 per share, Golden Capital Plc appreciated by 70 Kobo to N7.68 per unit from N6.98 per unit, Geo-Fluids Plc added 39 Kobo to sell at N5.50 per share versus N5.11 per share, and IPWA Plc rose by 8 Kobo to 85 Kobo per unit from 77 Kobo per unit.
During the trading day, market participants traded 1.9 million securities versus the previous day’s 30.5 million securities showing a decline of 49.3 per cent. The value of trades went down by 64.3 per cent to N80.3 million from N225.1 million, but the number of deals jumped by 32.1 per cent to 37 deals from 28 deals.
Infrastructure Credit Guarantee Company (InfraCredit) Plc finished the session as the most active stock by value on a year-to-date basis with 5.8 billion units valued at N16.4 billion, followed by Okitipupa Plc with 178.9 million units transacted for N9.5 billion, and MRS Oil Plc with 36.1 million units traded for N4.9 billion.
The most active stock by volume on a year-to-date basis was still InfraCredit Plc with 5.8 billion units worth N16.4 billion, trailed by Industrial and General Insurance (IGI) Plc with 1.2 billion units sold for N420.7 million, and Impresit Bakolori Plc with 536.9 million units traded for N524.9 million.
By Adedapo Adesanya
It was not a good day for the Nigerian Naira at the two major foreign exchange (FX) market on Friday as it suffered a heavy loss against the United States Dollar at the close of transactions.
In the black market segment, the Naira weakened against its American counterpart yesterday by N10 to quote at N1,485/$1, in contrast to the N1,475/$1 it was traded a day earlier, and at the GTBank forex counter, it depreciated by N2 to settle at N1,467/$1 versus Thursday’s closing price of N1,465/$1.
In the Nigerian Autonomous Foreign Exchange Market (NAFEX) window, which is also the official market, the nation’s legal tender crashed against the greenback by N6.65 or 0.46 per cent to close at N1,464.49/$1 compared with the preceding session’s rate of N1,457.84/$1.
In the same vein, the local currency tumbled against the Euro in the spot market by N2.25 to sell for N1,714.63/€1 compared with the previous day’s N1,712.38/€1, but appreciated against the Pound Sterling by 73 Kobo to finish at N1,957.30/£1 compared with the N1,958.03/£1 it was traded in the preceding session.
The market continues to face seasonal pressure even as the Central Bank of Nigeria (CBN) is still conducting FX intervention sales, which have significantly reduced but not remove pressure from the Naira. Also, there seems to be reduced supply from exporters, foreign portfolio investors and non-bank corporate inflows.
President Bola Tinubu on Friday presented the government’s N58.47 trillion budget plan aimed at consolidating economic reforms and boosting growth.
The budget is based on a projected crude oil price of $64.85 a barrel and includes a target oil output of 1.84 million barrels a day. It also projects an exchange rate of N1,400 to the Dollar.
President Tinubu said inflation had plunged to an annual rate of 14.45 per cent in November from 24.23 per cent in March, while foreign reserves had surged to a seven-year high of $47 billion.
Meanwhile, the cryptocurrency market was dominated by the bulls but it continues to face increased pressure after million in liquidations in previous session over accelerating declines, with Dogecoin (DOGE) recovering 4.2 per cent to trade at $0.1309.
Further, Ripple (XRP) appreciated by 3.9 per cent to $1.90, Cardano (ADA) rose by 3.5 per cent to $0.3728, Solana (SOL) jumped by 3.4 per cent to $126.23, Ethereum (ETH) climbed by 2.9 per cent to $2,982.42, Binance Coin (BNB) gained 2.0 per cent to sell for $853.06, Bitcoin (BTC) improved by 1.7 per cent to $88,281.21, and Litecoin (LTC) soared by 1.2 per cent to $76.50, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) traded flat at $1.00 each.
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