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 Aduragbemi Omiyale
The 60-megawatt (MW) Independent Power Plant (IPP) in Yenagoa, Bayelsa State, commissioned about a week ago by President Bola Tinubu, will receive gas supply from Oando Plc.
The indigenous energy solutions provider secured this exclusive gas supply deal through its upstream Joint Venture (JV) with Nigerian National Petroleum Company E&P Limited (NEPL).
Under the agreement, the company will deliver 11.2 million standard cubic feet per day (11.2 MMSCFD) through the Elebele Valve Station, interconnected with a major trunkline, ensuring an uninterrupted feedstock supply to the power plant.
This supply is underpinned by a long-term gas supply arrangement, providing a stable and predictable revenue stream while supporting higher-value domestic gas monetisation and diversifying the JV’s revenue base, Oando said in a statement on Thursday.
The Bayelsa State IPP is expected to deliver stable electricity to tens of thousands of homes, alongside commercial and industrial users in Yenagoa and its environs, reducing reliance on self-generation and lowering end-user power costs.
The plant operates as a fully integrated system, combining gas supply, embedded generation, and a ring-fenced distribution network.
The reliance on Oando for gas supply to the facility underscores its commitment to strengthening Nigeria’s power sector.
This builds on a proven track record of delivering first-of-its-kind projects, including the development and operation of Nigeria’s first combined cycle power plant, the flagship Okpai IPP, Akute IPP in Ogun State, and the Alausa IPP in Lagos, one of the earliest embedded generation projects in the country.
“This project reflects our long-standing commitment to Bayelsa State and its people. By enhancing power reliability, we are helping to unlock new opportunities for businesses, improve living standards, and stimulate broader economic growth across the State.
“Our integrated approach, connecting gas to demand and delivering stable energy where it is needed most, ensures that development is both sustainable and inclusive. As one of the largest employers in Bayelsa, we are proud to deepen our contribution to the state’s progress,” the chief executive of Oando, Mr Wale Tinubu, stated.
The deal demonstrates the potential for gas-to-power developments across the JV’s infrastructure footprint, reinforcing Oando’s strategy to deepen participation in Nigeria’s domestic gas value chain.
It further highlights public-private collaboration as an effective model for infrastructure delivery, with scope for broader application across future developments in Nigeria.
By Adedapo Adesanya
Oil prices were up on Thursday amid scepticism that forthcoming peace talks between the US and Iran would resolve disruptions to Middle Eastern energy supplies caused by the ongoing war.
Brent crude futures climbed $4.46 or 4.7 per cent to $99.39 per barrel, and the US West Texas Intermediate (WTI) crude futures gained $3.40 or 3.7 per cent to settle at $94.69 a barrel.
The US-Israeli war with Iran stands as the largest-ever disruption of global oil and gas supplies due to Iran’s interruption of traffic through the Strait of Hormuz, which typically carries about 20 per cent of the world’s oil and liquefied natural gas flows.
Reuters reported that American and Iranian negotiators have scaled back their expectations for a comprehensive peace deal and are instead seeking a temporary memorandum to prevent a return to conflict.
Iran, which has faced crippling US sanctions for years, wants a memorandum to include unfreezing some Iranian funds in return for allowing more ships through the strait. The US is demanding a halt to Iran’s nuclear enrichment work for 20 years, while Iran wants to limit it to three to five years. It also wants a timetable for lifting the sanctions imposed on the country by the United Nations, the US and the European Union (EU).
US President Donald Trump later said the Middle East nation is very close to a deal with Iran, an assertion he has previously made.
With the US blockade of Iranian ports announced after the collapse of peace talks over the weekend, the disruption could increase, although some US-sanctioned tankers have made it through.
Oil benchmarks barely reacted to his remarks, just as the markets also did not react to his announcement of a 10-day ceasefire between Israel and Lebanon in their related conflict, starting Thursday.
The supply disruptions are straining global oil inventories, particularly for jet fuel in parts of Asia and Africa. For instance, Nigerian airlines threatened to suspend all flight operations from April 20, unless there is an easing of crippling jet fuel prices, which they accused the country’s fuel marketers of artificially inflating.
The International Monetary Fund (IMF) has downgraded global growth and warns of a potential recession if the Iran war drags on.
By Dipo Olowookere
For the fourth straight trading session, the Nigerian Exchange (NGX) Limited ended on a positive note with a further 1.23 per cent growth on Thursday.
This was influenced by demand for large-cap equities like MTN Nigeria, Aradel, First Holdco and others.
According to data from Customs Street, the energy index grew by 4.76 per cent, the banking counter appreciated by 2.49 per cent, and consumer goods sector expanded by 0.34 per cent.
But the insurance and the industrial goods indices came under selling pressure, losing 0.74 per cent and 0.03 per cent, respectively, which did not put the bourse at risk.
Consequently, the All-Share Index (ASI) closed higher by 2,583.60 points to 211,901.01 points from 209,317.41 points, and the market capitalisation grew by N1.663 trillion to N136.436 trillion from N134.773 trillion.
Guinea Insurance and Trans-Nationwide Express were the best-performing stocks for the session after gaining 10.00 per cent each to sell for N1.21 and N5.50 apiece, as Aradel chalked up 9.99 per cent to trade at N1,547.50, Ecobank appreciated by 9.97 per cent to N61.20, and DAAR Communications improved by 9.93 per cent to N1.66.
The worst-performing stock was Ikeja Hotel, which depleted by 9.73 per cent to N33.40. Coronation Insurance lost 8.77 per cent to quote at N2.60, CAP went down by 8.61 per cent to N95.00, International Energy Insurance crashed by 8.18 per cent to N3.03, and McNichols slumped by 5.82 per cent to N6.31.
Unlike the preceding session, investor sentiment was strong yesterday, with 43 price gainers and 21 price losers, showing a positive market breadth index.
A total of 585.0 million equities valued at N34.8 billion exchanged hands in 45,559 deals during the trading day versus the 706.4 million equities worth N41.9 billion traded in 46,231 deals on Wednesday, indicating a decline in the trading volume, value, and number of deals by 17.19 per cent, 16.95 per cent, and 1.45 per cent, respectively.
Zenith Bank remained the busiest stock for the day with 61.7 million units sold for N7.6 billion, as UBA traded 45.9 million units worth N2.1 billion, Access Holdings exchanged 42.8 million units for N1.2 billion, Secure Electronic Technology transacted 38.5 million units valued at N37.5 million, and GTCO recorded a turnover of 25.3 million units worth N3.2 billion.
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