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Analysts Predict Monetary Policy Easing

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Economy
  • Analysts Predict Monetary Policy Easing

Analysts at WSTC Financial Services Limited in its 2018 forecast has predicted a 200 basis point (bps) reduction in the Monetary Policy Rate(MPR). The firm stated this in its 2018 projection titled: “Nigeria in 2018, A tale of two halves”.

The Lead Analyst, WSTC, Mr. Olutola Oni noted that “monetary easing is now a matter of when, not if.”

The report added: “We expect the CBN to adopt a dovish stance in 2018, although this should bear some implications on inflation and capital flows.

“The CBN will witness renewed pressure to complement the economic growth agenda of fiscal policies ahead of February 2019.

“The ongoing sovereign debt portfolio restructuring will enable the CBN mop up excess liquidity at lower cost .We expect a 200bps reduction in MPR in 2018, with the first rate cut in March or May.

“However, considerations about ensuring positive real-returns and stability in the FX market should ultimately place a floor on monetary easing and yield compression.”

The firm also anticipated stability in the foreign exchange market, stating that there were few incentives for the harmonisation of rates across various forex market segments in 2018.

It noted that increased exchange rate exposure, resulting from the FGN’s debt substitution strategy, would be an additional reason to avoid convergence of rates in the year.

“Inflows from oil earnings and proceeds of external borrowings will further prop-up external reserves in first half 2018. We expect a slowdown of inflows in the second half of 2018 as election-related uncertainty kicks in.

“However, both the MPC and the Presidency will favour forex stability ahead of the February 2019 general elections, hence, we reckon that FX rates will be managed across the different market segments,” it added.

Commenting on its outlook for the stock market, the report stated: “The equities market is expected to be driven by liquidity in the forex market, improving economic activities, impressive corporate performance and softer yields on fixed income securities in first half 2018. FMCG, Industrial Goods, Banking, Construction, and Upstream Oil & Gas are poised to benefit most.”

Continuing, it stated that regulation constitutes a key risk to the downstream oil and gas industry.

“We expect a modest contraction in net interest margin in the banking industry in the first half of 2018. Also, high oil prices, easier access to forex and improving economic activities should strengthen asset quality and enhance modest credit growth. Healthier consumer spending will be supported by declining inflation & election- induced public spending.

“The performance of the Consumer Goods & the Industrial Goods sectors will be driven by stable product prices, healthier sales volume, lower debt burden, lower borrowing cost & improved forex liquidity.

“Stability in forex and declining inflation are expected to support lower input and operating costs. Thus, we expect healthier margins from companies in these sectors.

“However, we reckon that a resurgence of tighter liquidity in the forex market and heightened election-related uncertainties in the year may dampen overall market performance in H2 2018.”

Furthermore on oil outputs, it added: “Crude oil started off in 2018 with a multi-year high of $67 per barrel, boosted by supply disruptions, record level of compliance among OPEC members (and some other major non-OPEC producers) to the ongoing production cut agreement and strong global demand.”

“With the ongoing alignment between OPEC and non-OPEC members, the odds are stacked in support of favourable oil prices in 2018. Heightened geo-political risks in the Middle East may further unsettle market disequilibrium for longer in 2018.”

“On the domestic scene, we believe that the FGN will be more inclined to managing the demands of militants in the creeks. Hence, we expect a more stable production and evacuation of crude oil from the Niger Delta,” it added.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Economy

Nigeria’s Plan to Review Oil Companies’ Gas Flaring Strategies

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Oil

Nigeria is ramping up its efforts to address environmental concerns in the oil and gas sector with a comprehensive plan to review gas flaring strategies of international and indigenous oil companies.

The Minister of State for Environment, Dr. Iziaq Salako, announced this initiative during a national stakeholders engagement meeting on methane mitigation and reduction held in Abuja, Investors King reports.

Gas flaring, a common practice in the oil industry, releases methane—a potent greenhouse gas—into the atmosphere, contributing to climate change and posing health risks to communities near oil facilities.

Nigeria aims to end routine gas flaring by 2030, aligning with global climate goals and commitments.

Dr. Salako explained the importance of reducing methane emissions and highlighted the detrimental effects on public health, food security, and economic development.

He outlined practical steps being taken to tackle methane emissions, including the development of methane guidelines and the engagement of government institutions.

The ministry, through the National Oil Spill Detection and Response Agency, will conduct periodic reviews of oil companies’ plans to ensure compliance with the gas flaring deadline.

Deloitte management consultants will assist in conducting comprehensive forensic audits to scrutinize the legitimacy of forward-contracted transactions.

President Bola Tinubu’s commitment to environmental sustainability underscores the government’s dedication to addressing climate change and fulfilling its multilateral environmental agreements.

The engagement event served as a platform for stakeholders to discuss methane mitigation strategies, existing policies, and implementation challenges.

Collaboration and dialogue among diverse sectors are crucial in charting a unified course towards sustainable methane reduction in Nigeria’s oil and gas industry.

As the country navigates its environmental agenda, ensuring accountability and transparency in gas flaring practices remains paramount for achieving a greener and healthier future.

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Economy

Interest Rate Jumps to 24.75% as CBN Takes Aggressive Stance Against Inflation

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Dr. Olayemi Michael Cardoso

The Central Bank of Nigeria (CBN) has announced a significant increase in the monetary policy rate, known as the interest rate, to 24.75%.

This move disclosed by CBN Governor Olayemi Cardoso during the 294th Meeting of the Monetary Policy Committee press briefing in Abuja, represents a bold step by the apex bank to address the mounting inflationary pressures faced by the country.

With inflation soaring to 31.70% in February, the CBN aims to moderate this upward trend by tightening its monetary policy stance.

This decision follows the previous hike in the interest rate to 22.75% in February, showcasing the CBN’s commitment to combatting inflationary forces.

While the bank opted to maintain the Cash Reserve Ratio at 45%, the significant increase in the interest rate underscores the urgency of the situation and the need for decisive action.

Governor Cardoso emphasized that these measures are essential to stabilize the economy and safeguard the purchasing power of the Nigerian currency.

The 294th MPC marks the second meeting under Governor Cardoso’s leadership, indicating a proactive approach to addressing economic challenges.

The next MPC meeting is scheduled for May 20th and 21st, 2024, highlighting the ongoing commitment of the CBN to navigate Nigeria’s economic landscape amidst inflationary pressures.

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Economy

Nigeria Braces for 10th Consecutive Interest Rate Hike by Central Bank

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Central Bank of Nigeria (CBN)

As Nigeria grapples with persistently high inflation, the Central Bank of Nigeria (CBN) is gearing up to implement its tenth consecutive interest rate hike in a bid to curb the soaring prices and attract investment.

Analysts surveyed by Bloomberg are anticipating a substantial 125 basis-point increase in the key rate to 24%, marking one of the most significant adjustments in the current tightening cycle.

The decision, expected to be announced by Governor Olayemi Cardoso on Tuesday at 2 p.m. in Abuja, comes on the heels of inflation accelerating to 31.7% in February, far surpassing the central bank’s target range of 9%.

This surge has been primarily attributed to the sharp depreciation of the naira, prompting authorities to devalue the currency twice since June to narrow the gap with the unofficial market rate and encourage investor confidence.

While these measures have seen the naira strengthen in recent days and bolstered investment inflows, including a fourfold increase in overseas remittances and significant foreign investor portfolio asset purchases, there remains a palpable need for more decisive action.

Giulia Pellegrini, a senior portfolio manager at Allianz Global Investors, emphasized the necessity for the CBN to intensify its tightening efforts to regain foreign investors’ confidence in the local bond market.

While acknowledging the positive strides made by the central bank, Pellegrini stressed the importance of a more assertive approach to prevent the diversion of investor attention to other frontier markets.

As the Nigerian economy navigates through these challenging times, the impending interest rate hike signals the CBN’s determination to address inflation head-on and foster a more stable economic environment.

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