– As FG Auctions N150bn Bond
BEVERLY HILLS, January 17, (THEWILL) – Ahead of the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) first meeting in 2021, scheduled for this week, experts have predicted that the Committee will decide to maintain the monetary policy rate at 11.50 per cent.
In addition, the rate-setting body is seen leaving the rest of policy parameters unchanged, with the asymmetric corridor remaining at plus 100 and minus 700 basis points around the monetary policy rate, the liquidity ratio at 30.00 per cent and the cash reserve ratio at 27.50 per cent.
Experts who spoke to THEWILL weekend, maintained that the projections are in line with prevailing economic realities and the tight financial position of the Nigerian government amid ballooning debt, rising inflation, pressure on foreign exchange and the second wave of the Covid-19 pandemic across the globe.
They offered a consensus that points to the MPC striking a balance between rising inflationary pressure and continued efforts to rescue the economy from recession.
The experts also see a sustained hold on rates, possibly up till the second quarter of 2021, when the economic situation would have shown the desired clarity.
The immediate vice-chancellor of Nasarawa State University, Keffi, and President, Association of National Accountants of Nigeria (ANAN), Prof. Muhammad Mainoma, projects that the MPC would maintain the rates this month.
According to him, historical evidence shows that the rate-setting Committee of the apex bank usually leaves rates unaltered on the average in the first month of the year.
He also argued that the MPC would consider external and domestic economic developments such as the second wave of the pandemic affecting the US and Europe in particular, and its impact on global economy which will favour a reduction in policy rates.
In the domestic environment, Mainoma said a major factor that will support a rate cut is the current economic recession and the need for the CBN to support economic recovery efforts.
On the other hand, he noted that the uncertainty in the international crude oil market and impact on external reserves, the need to stabilize exchange rate as well as tackle the rising inflation, will favour a rate increase.
“So, the challenge before the MPC will be to strike a balance between supporting economic growth and curbing inflation as well as forex market pressure.
“This balance of risk would dictate that the MPC holds all the policy rates in January,” he said.
Prof. Mainoma argued that, “Doing so will allow the CBN some more time to monitor macroeconomic response to the present accommodative monetary policy stance before possibly making any adjustment in future meetings of the MPC.
“Further, based on historical evidence, the MPC has left rates unaltered on the average in the first month of the year.”
“So, I expect the MPC to maintain the status quo this January; that is, MPR at 11.5 per cent, CRR at 27.5 per cent and Liquidity ratio at 30 per cent”, Professor of Finance and Accounts said in an e-mail to the THEWILL.
On his part, the Chief Executive Officer at BIC Consulting Services, Dr Boniface Chizea, said the MPR would not be a priority to the MPC in their sitting this week.
The foremost Economist said emphasis should be on areas that would have practical impact on the economy under pandemic situations while economic agents look for palliative to keep afloat.
“MPR will not have any practical impact under pandemic situations. Economic agents are looking for palliative to keep afloat and the government is borrowing even to fund recurrent spend.
“I think focus should be on the forex market and the drive for its unification”, Chizea stated in a mail to THEWILL weekend.
Professor of Capital Market at Nasarawa State University, Keffi, Uche Uwaleke, agreed that the MPC has a historical tradition of maintaining the rate in January to watch economic activities during the year.
He said the CBN had shown its readiness to support the growth of the economy and would not adjust the rate in January until about March or thereafter.
According to him, the rising inflationary trend, especially in the aspect of food, and the pressure on exchange rate would not support rate adjustment at this time, adding that the Committee would sustain the rate hold.
“The MPC would want to strike a balance and watch as economic activities take shape until around March or thereafter; so there will be a rate hold,” Uwaleke said in a telephone chat.
Nigeria’s headline inflation rate rose to 15.75 per cent in the month of December 2020 (from 14.89 per cent in November) according to a recent report published by the National Bureau of Statistics (NBS).
The December inflation rate represented the highest monthly rate increase in 32 months.
The rise in food inflation has been a major reason for the rise in headline inflation, food inflation rose from 18.30 per cent in November 2020 to 19.56 per cent in December.
The rise in food inflation was attributed to increases recorded in the prices of bread and cereals, potatoes, yam and other tubers, meat, fruits, vegetable, fish, and oils & fats.
The MPC meeting outcome is also expected to impact the Nigerian Stock Exchange (NSE) which has maintained a bullish trend as investors position for high yield windows in the equity market.
At the close of trading on the nation’s bourse last Friday, NSE All-Share Index (ASI) rose by 1.54 per cent to close at 40,963.14, while market capitalisation rose by N325.3 billion to close at N21.4 trillion.
Also, volume and value of trading rose 72.9 per cent and 27.9 per cent respectively to 809.4 million shares and N8.9 billion as the NSE ASI year-to-date gained 1.7 per cent.
Also, during the week, the CBN on the authority of the Debt Management Office (DMO) will auction a total of N150 billion Federal Government of Nigeria Bond in three tranches.
These are: N50,000,000,000 – 16.2884% FGN MAR 2027 (10-Yr Re-opening); N50,000,000,000 – 12.50% FGN MAR 2035 (15-Yr Re-opening) and N50,000,000,000 – 9.80% FGN JUL 2045 (25-Yr Re-opening).
A notice published by DMO in its Website, January 14, stated that the auction date for the Bonds is January 20, 2021, while the settlement date is January 22, 2021.
This is coming on the heels of the N60 billion FGN Bondauction of December 2020, which it said was oversubscribed by over 220 per cent.
“The Debt Management Office offered a total of N60 Billion at the FGN Bond Auction of December 2020, which was held on December 16, 2020. The offer was oversubscribed as total Bids received were N134.056 billion, a subscription level of over 220 per cent”, the DMO said in a post-bid announcement.
About the Author
Sam Diala is a Bloomberg Certified Financial Journalist with over a decade of experience in reporting Business and Economy. He is Business Editor at THEWILL Newspaper, and believes that work, not wishes, creates wealth.
