Economy
After Recession: A Need for Policy Change?
We expect the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to hold rates at the current levels, while the fiscal authority continues to implement policy measures to sustain growth. The MPC is scheduled to meet on September 25 and 26, 2017.
The current tight monetary policy is justified in order to curb the high inflation rate and maintain stability in the foreign exchange (FX) market.
At its July 2017 meeting, the MPC maintained the Monetary Policy Rate (MPR) at 14%, with the asymmetric corridor at +200 and -500 basis points; Cash Reserve Requirement (CRR) and Liquidity Ratio (LR) at 22.50% and 30% respectively.
In the international scene, the International Monetary Fund (IMF) in its World Economic Outlook, July 2017 edition, forecasts global economic growth at 3.5% in 2017. The IMF indicated that the risks around the global growth forecast are from monetary policy normalisation in some advanced economies, notably the U.S, anti-globalisation stance, and geopolitical tensions.
The Federal Open Market Committee (FOMC) of the United States (U.S) Federal Reserve (The Fed) maintained the Federal Funds Rate (The Fed Fund Rate) at its September 2017 meeting but signalled unwinding of balance sheet as from October 2017.
At the domestic level, the Q2, 2017 figures from the National Bureau of Statistics (NBS) shows that the GDP in Nigeria recorded a growth rate of 0.55%. The recovery in crude oil production and price and the introduction of the Investors’ and Exporters’ Foreign Exchange Window (I&E Window), increased the supply of foreign exchange, and helped to pull the economy out of recession.
Meanwhile, the accretion to the external reserves continued after the MPC meeting in July 2017. The 30-Day moving average external reserves increased by 3.21% to $31.83bn as at 31st August
2017, from $30.84bn as at 31st July 2017.
However, the value of the Naira recorded a mixed performance but has shown relative stability since the last MPC meeting in July 2017. The value of the Naira depreciated in the official market, while it closed unchanged in the parallel market. The premium between the inter-bank and parallel markets averaged about N61 between the last MPC meeting in July 2017 and September 15, 2017 from an average of N66 during the period between the MPC Meetings of May and July 2017.
The monetary aggregates 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% 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% for the year 2017.
The CBN has maintained tight monetary policy to curb high inflation rate and ensure FX stability.
Our forecast shows that the inflation rate will remain in the range of 15.55%-16.20% between September 2017 and December 2017.
This is based on the assumption that the Federal Government of Nigeria (FGN) does not increase the price of Premium Motor Spirit (PMS) and Electricity Tariff. The forecast range is higher than the CBN’s target of 6%-9% and the growth retarding inflation benchmark of 12.5%.
The yields on NTBs decreased in August 2017, compared with the yields in July 2017. At the NTBs auction, average yield on the 91-day, 182-day and 364-day NTB dropped. The yields on the FGN Bonds that we monitored closed higher in August 2017 when compared with the yields in the preceding month. We expect the yields on the fixed income securities to drop.
This is because of the stability in the FX market, plans of the FGN to refinance part of the local debt with foreign debt and the positive GDP growth rate expected going forward.
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 adjustments are required to boost economic activities.
By Adedapo Adesanya
The National Pension Commission (PenCom) has defended its decision to allow Pension Fund Administrators (PFAs) to invest in the parent companies of their custodians, insisting that adequate safeguards are in place to protect contributors’ funds.
The director-general of the pension regulator, Ms Omolola Oloworaran, speaking on Tuesday during the Meet the Press Briefing at the Presidential Villa, Abuja, said the commission’s decision to relax the investment restriction followed a comprehensive risk assessment that found minimal conflict of interest.
She explained that under PenCom’s investment regulations, PFAs are only permitted to invest pension assets in carefully selected instruments that meet stringent criteria, including profitability, strong credit ratings and proven track records.
According to her, the commission regularly reviews its investment regulations, conducts routine examinations and spot checks on PFAs to ensure strict compliance with established risk management guidelines.
“PFAs cannot just go into the stock market and buy any kind of stock. There are strict guidelines. Companies must demonstrate profitability, have a proven track record and satisfy other criteria before pension funds can invest,” she said.
Ms Oloworaran noted that each PFA also operates under the oversight of a board, an investment committee and a risk management committee, providing additional layers of governance to safeguard contributors’ funds.
She said PenCom recently issued a circular allowing PFAs to invest in the parent companies of their custodians after determining that the potential conflict of interest was negligible.
The PenCom boss explained that the parent companies involved are largely Tier-1 banks, including First Bank, United Bank for Africa (UBA) and Zenith Bank, which she described as A-rated institutions with strong financial foundations.
She said the policy was intended to widen investment opportunities for pension funds without compromising safety.
Using Stanbic IBTC as an example, Ms Oloworaran explained that if its custodian is Zenith Bank, the previous restriction prevented the pension administrator from investing in Zenith Bank shares despite the bank’s strong performance.
“We reviewed the risks and any potential conflict of interest and found the risks to be very low. That is why we opened that investment window,” she said.
By Adedapo Adesanya
The duo of Central Securities Clearing System (CSCS) Plc and Afriland Properties Plc weakened the NASD Over-the-Counter (OTC) Securities Exchange by 1.61 per cent on Tuesday, July 14.
CSCS Plc saw its stock value drop N9.08 to close at N82.40 per share compared with the preceding session’s N91.48 per share, and Afriland Properties Plc slid by 17 Kobo to sell at N15.00 per unit versus N15.70 per unit.
The losses recorded by the two securities pulled back the market capitalisation by N41.64 billion to N2.546 trillion from N2.587 trillion, and cracked the NASD Security Index (NSI) by 69.36 points to 4,242.31 points from 4,311.67 points.
It was observed that the exchange witnessed two price advancers during the session, led by FrieslandCampina Wamco Nigeria Plc, which gained N1.37 to end at N151.37 per share compared with the previous day’s N150.00 per share, and Food Concepts Plc chalked up 5 Kobo to settle at N2.50 per unit versus N2.45 per unit.
The volume of securities traded by market participants surged by 50.7 per cent to 13.7 million units from the previous 9.1 million units, while the value of securities went down by 79.7 per cent to N65.2 million from N320.4 million, and the number of deals crashed by 3.6 per cent to 27 deals from the previous session’s 28 deals.
At the close of transactions, Great Nigeria Insurance (GNI) Plc remained the most traded stock by value on a year-to-date basis, with the sale of 3.4 billion units for N8.4 billion, trailed by Infrastructure Credit Guarantee (Infracredit) Plc, which exchanged 2.3 billion units valued at N6.5 billion, and CSCS Plc with 73.9 million units transacted for N5.2 billion.
GNI Plc also closed the trading day as the most traded stock by volume on a year-to-date basis, with 3.4 billion units worth 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.
By Adedapo Adesanya
The Naira weakened against the US Dollar by N3.43 or 0.25 per cent in the Nigerian Autonomous Foreign Exchange Market (NAFEX) on Tuesday, July 14, to close at N1,383.08/$1 compared with the previous day’s N1,379.65/$1.
Equally, the domestic currency depreciated against the Pound Sterling in the official market during the session by N6.80 to settle at N1,848.18/£1 versus Monday’s closing price of N1,854.98/£1, and lost N7.37 on the Euro to sell at N1,583.76/€1, in contrast to the preceding session’s N1,576.39/€1.
At the parallel market, the Nigerian Naira slumped against the Dollar yesterday by N5 to quote at N1,405/$1 compared with the previous day’s value of N1,400/$1, and at the GTBank FX desk, it traded flat at N1,388/$1.
The squeeze at the market came as demand rose. Total dollar volume hovered around $1 billion with NFEM interbank FX turnover surging to $243.095 million, up 182 per cent from $86.136 million the previous day.
The interbank deals among financial institutions or market makers also increased to 140 from 85 previously reported at the official window on Monday. This indicates a heightened rush of large-scale currency trading in the wholesale forex market.
Shifts in FX supply and demand triggered fluctuations in the NFEM window. Still, FX analysts maintained a positive outlook on the naira as gross external reserves continue to approach $52 billion.
Strong foreign reserves have supported market confidence, as foreign portfolio investors continue to flock to the fixed-income market.
There are also indications of pressure to come as after Dangote Petroleum Refinery scrapped its Naira-denominated pricing model for petrol, diesel and aviation fuel, replacing it with a Dollar-based framework that ties domestic fuel prices directly to exchange rate movements.
Meanwhile, in the crypto market, Bitcoin (BTC) jumped about 3.5 per cent to $64,723.42, while Ethereum (ETH) gained 0.5 per cent to trade at $1,873.15, after US inflation cooled more than expected, sharply reducing market odds of a near-term Federal Reserve rate hike.
June headline inflation slowed to 3.5 per cent and core inflation eased to 2.6 per cent, lifting cryptocurrencies.
Solana (SOL) rose by 3.8 per cent to $77.90, Ripple (XRP) appreciated by 3.6 per cent to $1.10, Cardano (ADA) expanded by 3.4 per cent to $0.1640, Dogecoin (DOGE) soared by 3.0 per cent to $0.0744, Binance Coin (BNB) added 1.9 per cent to sell for $579.51, and TRON (TRX) improved by 0.7 per cent to $0.3270, while the US Dollar Tether (USDT) and the US Dollar Coin (USDC) remained unchanged at $1.00 each.
