Investors and other stakeholders in the nation’s capital market eagerly await the decisions of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) as the body meets between Monday 19th and Tuesday 20th of November, which will the last time it will be meeting in 2018. Analysts are of the views that the MPC may retain the current rates due to exigency of the moment, most especially the forthcoming general elections.
Meanwhile, the equity market continued to bleed as listed stocks shed N1.91 trillion in market capitalisation year to date. As at the close of business on November 16, 2018, the market capitalisation of listed stocks closed at N11.7 trillion compared with N13.61 trillion on the last trading day of 2017, representing a year to date decline of 14 percent.
Investors last week traded 1.28 billion shares worth N11.54 billion in 13,245 deals compared with 1.07 billion shares worth N18.19 billion that were executed in 14,372 deals in the previous week. The All Share Index (ASI) closed last week Friday at -16.17 percent year to date just as the Consumer Goods Index recorded the worst performance year to date at -31.18 percent.
By this time last year, the ASI ended the period at 36.7 percent, with the banking and pension indexes the best performing sub sectoral indexes at 68 percent and 58 percent year to date returns respectively. Thus the capital market now is in dire need of policy stimulus to stimulate significant interest in it.
Since July 2016, the MPC has retained the Monetary Policy Rate (MPR) at 14 percent; CRR at 22.5 percent while the liquidity ratio at 30 percent and the asymmetric window around the MPR at +200/-500 basis points.
Analysts at the United Capital, one of the leading investment banks in the country rated the likelihood of a rate hike lower based on the current macroeconomic conditions.
“Despite expectations of a less hawkish stance earlier in the year, the decision to maintain status quo over the past two years and counting, has been driven by sustained global uncertainties amid policy normalization in the US and fear of a stronger US Dollar, faltering output recovery and currency market fragility in the local economy amid renewed pressure on inflation rate, elevated food prices and rowing political/election spending”, said analysts at the United Capital in a note to clients.
“Ahead of the November meeting, increased uncertainties in the global market and growing tension in the domestic polity, suggest that a more accommodative monetary policy by the MPC is broadly unlikely in the immediate term. More so, an anticipated increase in domestic wage bill may pressure headline inflation higher. Accordingly, we retain our position that the MPC will not tinker with policy rate, though arguments for a rate hike may come stronger. Nevertheless, we expect the Apex bank to continue to the pace of aggressive liquidity mop-up amid increased election spending and pressure on the local unit”, they added.
On the part of FSDH Merchant Bank, MPC is expected to hold on to the current rates even in the face of the consistent decline in external reserves, rising inflation and the possibility of a rate hike by the US Fed.
“Data from the CBN shows that the key monetary aggregates in the country are below the target the CBN sets for the country. This development supports an argument for an expansionary policy to boost credit creation. However, the current structural rigidities in the economy do not support strong credit growth. Therefore, unconventional policies are required to boost credit creation and business expansion to stimulate growth.
“Measures that remove the risks inherent in the economy will encourage credit expansion and this will support sustainable growth. Looking at possible policy options open to the MPC, FSDH Research is of the opinion that members of the MPC will vote to maintain interest rates at the current levels. The CBN can continue to use the Open Market Operations (OMO) to manage liquidity in the banking industry in order to maintain price stability”, FSDH analysts stated in their weekly report.
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