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CBN’s Unconventional Silence on Interest Rate

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Interbank rate
  • CBN’s Unconventional Silence on Interest Rate

Views expressed and positions taken on any economic policy by the Managing Director, Financial Derivatives Company, Mr Bismark Rewane, cannot be ignored. He has paid his due. Prior to the much-delayed first meeting in the year of the Monetary policy Committee of the Central Bank of Nigeria, Rewane had intuitively expected a one per cent reduction in the interest rate which currently stands at 14 per cent and stated that he did expect any change in the other key economic indicators.

His intuitive expectation on the need for a reduction in the interest rate is obviously understandable. The Godwin Emefiele-led CBN has been working had to fix the economy that exited recession at the first quarter of last year. The Monetary Policy Rate had peaked at 18.7 per cent on downward trend for almost 11 months to 15.4 per cent.

The apex bank’s target is within a range of six to nine per cent. Since November last year, the MPR has stood at 14 per cent, the Cash Reserve Ratio, 22.5 per cent, and the Asymmetric window, +200 basis point and -500 basis point of the MPR.

Every quantum of change in interest rate has implications particularly on the financial market and the economy in general. The apex bank worldwide changes interest rate upward or downward to ensure maximum employment, price stability and steady economic growth.

When the interest rate is lower, companies can borrow at a cheaper rate, grow businesses and employ more labour. Conversely, a high interest rate with low inflation regime constrains companies from borrowing for expansion. Many of them may embark on high cost control which may lead to spinning off of some businesses with attendant effect of downsizing labour.

There is an inverse relationship between the money market and capital market. A rise in interest rate spurs activities in the money market instruments as speculators take advantage of higher interest rate by moving their funds from the stock market to money market to invest in instruments such as Treasury Bills and Government Bonds.

The same speculators would embark on flight for safety by withdrawing their funds at a click of button from fixed deposits or fixed income securities to the stock market once the market is bullish. Speculators are high risk takers as they can win all or lose all. Nonetheless, they are key drivers in the capital market as they provide liquidity. But they need policy direction for enhanced calculated risk.

Therefore, every change in the Minimum Rediscount Rate has spillover effects on investment decisions for both domestic and foreign portfolio investors. So, the current MRR at 14 per cent while inflation is at 14.33 does not send comfortable signals. This perhaps explains why Rewane’s expectation was the need for the CBN to reduce the interest rate by one per cent ahead of the historic MPC meeting recent.

The apex bank is basking in the euphoria that its tight monetary policy is designed to keep key macroeconomic indicators at a comfortable zone, encourage savings and derisk bank lending to the private sector to boost economic expansion.

Emefiele had technically defended the decision of the MPC to hold the MPR at 14 per cent in the last 18 months. He has an answer to why other variables also remain fixed, saying: “On the argument to hold, the committee believes that key macroeconomic variables have continued to evolve in a positive direction in line with the current stance of macroeconomic policy and should be allowed more time to fully manifest.” Perhaps, this largely accounts for the decision of the “nine wise (wo)men” to retain the MRR and indeed other indicators at the 2017 level.

Prior to the MPC’s meeting, the President, Chartered Institute of Stockbrokers, Mr Oluwaseyi Abe, had lamented the effect of a prolonged delay of the meeting on the financial market. According to him, it had made foreign and domestic investors to rely on guesswork about the government’s direction on the interest rate. Abe’s position, which is corroborated by one of his colleagues on the Institute’s Council, is justifiable.

Interest rate affects our daily lives and the health of any economy. It is a crucial macroeconomic variable for growth and development. Interest rate affects our

personal lives by guiding us whether to consume or save. Investors in the financial market have waited since late last year for the CBN’s position on the interest rate to enable them adjust their asset allocation.

Every announcement by the MPC has

therefore become significant as absence of policy direction on interest rate enthrones speculative decisions. Against all expectations and permutations, the MPC members rose from the recent meeting only to announce that the interest rate and other key indicators had been retained. Unconventional silence on the interest rate will have dire consequences on corporate growth.

The apex bank can keep a high interest rate when an economy is doing well. But Nigeria’s economy is beginning to slow down, hence, lower interest rate becomes an option to stimulate business and employment. At the moment, Nigeria is playing golf with high interest rate and slow growth. This can impede economic growth.

On the stock market, the impact of high interest rate is obvious. Investors who love short time horizon sometimes move their funds to bonds in order have a better yield. At a period like this, the silence of the MPC members on the need for a downward review of interest is not golden. The financial market is awaiting the apex bank’s immediate intervention. Unconventional silence of the CBN and its MPC’s members may be a costly gamble.

Oni, a financial journalist and chartered stockbroker, is the CEO, Sofunix Investment and Communications.

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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Computer Village Traders Demand Refunds as Lagos State Cancels Katangowa Project

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Traders at the renowned Computer Village in Lagos find themselves in a state of uncertainty following the abrupt termination of the multibillion-naira Katangowa project by the Lagos State Government.

The project, which was aimed at relocating the bustling tech market from its current site in Ikeja to the Agbado/Oke-Odo area of the state, has left traders in a state of limbo.

Despite the cancellation of the project reportedly occurring two years ago, traders claim they were not informed by either the government or the developers, Bridgeways Limited.

This lack of communication has left them in a precarious position, particularly concerning the substantial upfront payments made by some traders to the developers.

Chairman of the Computer Village Market Board, Chief Adebowale Soyebo, expressed dismay at the lack of communication from the authorities regarding the project’s termination.

He explained that neither the government nor the contractors had officially informed them of the decision, leaving traders in the dark about the fate of their investments.

Traders who had made payments to Bridgeways Limited now seek clarity on the refund process. The absence of official communication has compounded their concerns, with many uncertain about the fate of their investments.

While acknowledging the payments made by traders, Lagos State Governor’s Adviser on e-GIS and Urban Development, Dr. Olajide Babatunde, assured that the government would facilitate refunds.

He, however, said there is a need for proper identification and verification to ensure that affected traders receive their refunds accordingly.

The termination of the Katangowa project has reignited debates about the relocation of Computer Village.

Traders assert that the issue of relocation should not be raised until the new site is at least 70% completed, as per their agreement with the government.

The cancellation of the Katangowa project underscores the challenges associated with large-scale urban development projects and the importance of transparent communication between stakeholders to avoid such situations in the future.

As traders await further directives from the government, they remain hopeful for a resolution that safeguards their interests and ensures the continuity of one of Nigeria’s most prominent tech markets.

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Government Begins Disbursement of N200bn Support Fund to Manufacturers and Businesses

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The Ministry of Industry, Trade and Investment has initiated the disbursement of the long-awaited N200 billion Presidential Conditional Grant Scheme.

This is the beginning of a vital phase in the government’s strategy to provide financial assistance to manufacturers and businesses across Nigeria.

The scheme, which is being administered through the Bank of Industry (BOI), has been divided into three categories of funding, totaling N200 billion.

The disbursement process comes after an exhaustive selection process and verification of applicants to ensure transparency and accountability in the allocation of funds.

Doris Aniete, spokesperson for the Ministry of Industry, Trade and Investment, announced the progress in a statement posted on the trade minister’s official X (formerly Twitter) handle.

Aniete highlighted that verified beneficiaries have already started receiving their grants, signaling the beginning of the phased disbursement strategy.

“We are pleased to inform you that the disbursement process for the Presidential Conditional Grant Programme has officially commenced. Some beneficiaries have already received their grants, marking the beginning of our phased disbursement strategy,” stated Aniete.

She further disclosed that by Friday, April 19, a substantial number of verified applicants are set to receive significant disbursements.

However, Aniete emphasized that disbursements are ongoing, and not all applicants will receive their grants immediately, assuring that all verified applicants will eventually receive their grants in subsequent phases.

The initiation of the disbursement process comes after more than eight months since President Bola Tinubu announced the grant for manufacturers and small businesses.

The scheme aims to mitigate the adverse effects of recent economic reforms and foster sustainable economic growth by empowering businesses with financial support.

President Tinubu had outlined the government’s commitment to strengthening the manufacturing sector and creating job opportunities through the disbursement of N200 billion over a specified period.

The funding is intended to provide credit to 75 enterprises, each able to access up to N1 billion at a low-interest rate of 9% per annum.

However, the implementation of the programme has faced challenges, including delays and criticisms regarding the registration process.

Femi Egbesola, President of the Association of Small Business Owners, expressed concerns over the slow pace of data collation and suggested that genuine businesses were being discouraged from accessing the loans.

Despite the hurdles, the commencement of the disbursement process signifies a significant step forward in the government’s efforts to provide vital support to manufacturers and businesses, potentially revitalizing economic activities and driving growth across various sectors.

As beneficiaries begin to receive their grants, the impact of this initiative on the nation’s economic landscape is eagerly anticipated.

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MicroStrategy Rally Crushes Short Sellers, Wiping Out $1.92 Billion

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Short sellers betting against MicroStrategy found themselves facing significant losses as the company’s rally wiped out $1.92 billion since March.

This development comes amidst a rally that has seen MicroStrategy’s stock outperform bitcoin, causing a considerable hit to those who had taken a bearish stance on the tech firm.

According to data from S3 Partners, short sellers have been on the losing end since March, as MicroStrategy’s stock surged, highlighting the impact of the rally on those betting against the company’s success.

This loss underscores the challenges faced by short sellers in a market where certain stocks experience rapid and unexpected price increases.

The rally in MicroStrategy’s stock is attributed to several factors, including the approval of several spot bitcoin exchange-traded funds (ETFs) by the Securities and Exchange Commission (SEC) earlier in the year.

This move by the SEC brought bitcoin, a once-nascent asset class, closer to the mainstream and fueled investor interest in companies like MicroStrategy, known for their significant holdings of the cryptocurrency.

MicroStrategy, which held nearly 190,000 bitcoin on its balance sheet as of the end of 2023, has indicated its intention to continue increasing its exposure to the digital currency.

The company’s decision to sell convertible debt to raise money for additional bitcoin purchases further bolstered investor confidence and contributed to the stock’s rally.

Analysts at BTIG noted that the premium for MicroStrategy’s stock reflects investors’ desire to gain exposure to bitcoin indirectly, especially those who may not have the means to invest directly in the cryptocurrency or ETFs.

The company’s ability to raise capital for bitcoin purchases is seen as a positive sign for shareholders, adding to the optimism surrounding its stock.

However, despite the recent rally and optimism surrounding MicroStrategy, the crypto industry as a whole continues to be heavily shorted.

Short interest in nine of the most-watched companies in the crypto space remains high, standing at 16.73% of the total number of outstanding shares, more than three times the average in the United States.

Moreover, concerns persist regarding the SEC’s stance on cryptocurrencies, with some experts suggesting that the approval of spot bitcoin ETFs may not necessarily indicate a broader acceptance of other similar products, such as spot ethereum ETFs.

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