Economy
Any Rate Cut by MPC Will Lead to Negative Real Yield—FSDH
By Modupe Gbadeyanka
Analysts at FSDH Research have warned that any attempt by the Monetary Policy Committee (MPC) to cut rate at its meeting next week will lead to a negative real yield, with a possible significant capital flight from Nigeria by foreign investors.
FSDH, in its latest report obtained by Business Post, said it expects the committee to still hold the rate at 14 percent.
Members of the MPC will meet next week and observers are keenly awaiting outcome of the meeting.
FSDH noted that the value of the Naira recorded a mixed performance but show relative stability since the last MPC meeting in July 2017.
The value of the Naira depreciated at the official market, while it closed unchanged at the parallel market.
The inter-bank market rate depreciated marginally by 0.07 percent to N305.95/$ on September 15, 2017 from N305.75/ $ on July 25, 2017.
The parallel market closed unchanged at N367/ $ on September 15, 2017 same as at July 25, 2017.
It said the premium between the inter-bank and parallel markets averaged about N61 after the last MPC meeting in July 2017 and September 15, 2017 from an average of N66 during the period between the MPC Meeting of May and July 2017 meeting.
“A rate cut will lead to a negative real yield, with a possible significant capital flight from Nigeria by foreign investors. Thus, a hold decision is appropriate,” the report said.
FSDH also noted that the yields on NTBs decreased in August 2017, compared with July 2017. At the NTBs auction, average yield on the 91-day was down at 13.82 percent in the month of August compared with 13.93 percent recorded in July 2017.
The average 182-Day NTB stood at 19.02 percent in August 2017, down from 19.11 percent in July 2017. The average 364-Day NTB yield also closed lower at 22.73 percent in August 2017, from 22.80 percent in July 2017.
“The yields on the FGN Bonds that we monitored closed higher in August 2017 over the preceding month. The average yield on the 16 percent FGN June 2019 increased to 16.84 percent in August from 16.62 percent in July.
The 16.39 percent FGN Jan 2022 closed at 16.33 percent in August 2017, marginally higher than 16.13 percent in July 2017; the 10 percent FGN Jan 2030 also closed at 16.43 percent in August 2017, higher than 16.12 percent in July 2017.
“We expect the yields on the fixed income securities to trend downward going forward. This is because of FX stability, plans of the FGN to refinance part of the local debt into foreign debt and the positive GDP growth rate expected going forward,” it said.
The report also said the monetary aggregates (narrow money and broad money) as at July 2017 show that the annualised growth rate in money supply is below the target that the CBN sets for the year 2017.
The broad money supply (M2) decreased by 5.08 percent to N22.20trn in July 2017 from N23.39trn in December 2016. This is lower than the CBN’s growth rate target of 10.29 percent for the year 2017.
The net domestic credit increased marginally by 1.92 percent to N27.16trn in July 2017 from N26.65trn in December 2016.
The annualised growth rate in the net domestic credit in July 2017 was 3.29 percent, below the target growth rate of 17.93 percent for 2017.
The net domestic credit to the Federal Government increased by 6.88 percent to N4.99trn in July 2017 from N4.67trn in December 2016. The net domestic credit to private sector also increased marginally by 0.87 percent to N22.17trn in July 2017 from N21.98trn in December 2016.
The CBN has maintained tight monetary policy to curb high inflation rate and ensure FX stability.
“Looking at the developments both in the domestic and international markets, a hold in rates at this meeting will be appropriate in order to sustain the current growth rate in the economy. However, the MPC may adjust the asymmetric corridor around the MPR to signify easing.
“Meanwhile, fiscal measures in the forms of tax relief and tariff adjustment are required to boost economic activities,” the report said.
By Adedapo Adesanya
The United Arab Emirates has announced its decision to quit the Organisation of the Petroleum Exporting Countries (OPEC) to focus on national interests.
This dealt a heavy blow to the oil-exporting group at a time when the US-Israel war on Iran had caused a historic energy shock and rattled the global economy.
The move, which will take effect on May 1, 2026, reflects “the UAE’s long-term strategic and economic vision and evolving energy profile”, a statement carried by state media said on Tuesday.
“During our time in the organisation, we made significant contributions and even greater sacrifices for the benefit of all,” it added. “However, the time has come to focus our efforts on what our national interest dictates.”
The loss of the UAE, a longstanding OPEC member, could create disarray and weaken the oil cartel, which has usually sought to show a united front despite internal disagreements over a range of issues from geopolitics to production quotas.
UAE Energy Minister Suhail Mohamed al-Mazrouei said the decision was taken after a careful look at the regional power’s energy strategies.
“This is a policy decision. It has been done after a careful look at current and future policies related to the level of production,” the minister said.
OPEC’s Gulf producers have already been struggling to ship exports through the Strait of Hormuz, a narrow chokepoint between Iran and Oman through which a fifth of the world’s crude oil and liquefied natural gas supplies normally pass, because of threats and attacks against vessels during the war.
The UAE had been a member of OPEC first through its emirate of Abu Dhabi in 1967 and later when it became its own country in 1971.
The oil cartel, based in Vienna, has seen some of its market power wane as the US has increased its production of crude oil in recent years.
Additionally, the UAE and Saudi Arabia have increasingly competed over economic issues and regional politics, particularly in the Red Sea area.
The two countries had joined a coalition to fight against Yemen’s Iran-backed Houthis in 2015. However, that coalition broke down into recriminations in late December when Saudi Arabia bombed what it described as a weapons shipment bound for Yemeni separatists backed by the UAE.
By Adedapo Adesanya
Central Securities Clearing System (CSCS) Plc bested four price decliners on the NASD Over-the-Counter (OTC) Securities Exchange on Monday, April 27. The alternative stock market opened the week bullish during the session with a 0.03 per cent uptick.
According to data, the security depository company added N2.61 to its share price to close at N76.26 per unit compared with the preceding session’s N78.87 per unit.
As a result, the market capitalisation of the platform increased by N820 million to N2.425 trillion from N2.424 trillion, and the NASD Unlisted Security Index (NSI) gained 1.38 points to finish at 4,053.97 points compared with the 4,052.58 points it ended last Friday.
The four price losers were led by NASD Plc, which slumped by N3.80 to sell at N34.70 per share versus N38.50 per share. FrieslandCampina Wamco Nigeria Plc fell by N1.45 to N98.10 per unit from N99.55 per unit, Food Concepts Plc slid by 27 Kobo to N2.43 per share from N2.70 per share, and Geo-Fluids Plc dipped by 9 Kobo to N2.91 per unit from N3.00 per unit.
The value of securities transacted by market participants went down by 82.0 per cent to N7.4 million from N41.3 million units, the volume of securities declined by 28.5 per cent to 319,831 units from 447,403 units, and the number of deals dropped by 34.1 per cent to 29 deals from 44 deals.
Great Nigeria Insurance (GNI) Plc was the most active stock by value on a year-to-date basis with 3.4 billion units worth N8.4 billion, followed by CSCS Plc with 59.6 million units sold for N4.0 billion, and Okitipupa Plc with 27.8 million units exchanged for N1.9 billion.
Also, GNI Plc was the most traded stock by volume on a year-to-date basis with 3.4 billion units valued at N8.4 billion, followed by Resourcery Plc with 1.1 billion units traded for N415.7 million, and Infrastructure Guarantee Credit Plc with a turnover of 400 million units worth N1.2 billion.
By Adedapo Adesanya
The first trading day of the week in the currency market was bearish for the Naira in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Monday, April 27.
Yesterday, it lost N5.80 or 0.43 per cent against the United States Dollar to trade at N1,364.24/$1, in contrast to the N1,358.44/$1 it was traded last Friday.
In the same vein, the Nigerian currency depreciated against the Pound Sterling in the official market by N13.70 to close at N1,847.72/£1 versus the preceding session’s N1,834.02/£1, and slumped against the Euro by N11.56 to sell at N1,602.29/€1 versus N1,590.73/€1.
Also, the Nigerian Naira tumbled against the greenback during the trading day by N5 to quote at N1,385/$1 compared with the previous rate of N1,380/$1, and at the GTBank FX desk, it traded flat at N1,370/$1.
The poor performance of the domestic currency could be attributed to liquidity shortage at the official currency market on Monday, which came amid surging demand for international payments. At $76.50 million, interbank liquidity printed higher across 79 deals, up from the $43.572 million reported on Friday.
Nigeria’s gross external reserves declined to $48.45 billion amid a month-long decline in inflows, amid uncertainties in the global commodity market. The depletion of foreign reserves could be partly attributed to the Central Bank of Nigeria’s intervention in the FX market.
The market remains perturbed by persistent concerns over liquidity constraints, policy transparency, and weakening confidence in Nigeria’s FX market, while boosters, including oil prices, continue to look rocky due to stalled discussions and unclear ceasefire negotiations between the US and Iran.
A look at the cryptocurrency market, Bitcoin (BTC) has been rejected near $79,000 three times in eight sessions, leaving the level as the de facto ceiling of its current trading range even as major cryptocurrencies trade lower over the past day. It lost 0.9 per cent to sell at $77,003.61.
Analysts say that upcoming US Federal Reserve policy decisions and top tech firms’ earnings this week could provide the catalyst to push bitcoin decisively above $80,000.
The market also continued to weigh Iran’s interim deal proposal to reopen the Strait of Hormuz, which failed to advance over the weekend. The White House said US officials were discussing the latest Iranian proposal but maintained “red lines” on any deal to end the eight-week war.
Solana (SOL) dropped 1.8 per cent to $84.25, Ripple (XRP) went down by 1.6 per cent to $1.39, Ethereum (ETH) depreciated by 1.3 per cent to $2,290.00, Binance Coin (BNB) declined by 0.5 per cent to $625.18, and Cardano (ADA) fell by 0.2 per cent to $0.2480.
However, Dogecoin (DOGE) rose by 2.0 per cent to $0.1002, and TRON (TRX) appreciated by 0.2 per cent to $0.3242, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 apiece.
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