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Interest Rate Hike Looms as MPC Meets

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  • Interest Rate Hike Looms as MPC Meets

The two-day Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) meeting, which commences today will be closely watched after the country’s emerging market peers – Turkey and Russia- recently raised interest rate.

This development is coming as the apex bank yesterday clarified its injection of N786 billion into Polaris Bank Limited, a new commercial bank that assumed the assets and liabilities of the defunct Skye Bank.

Checks revealed that the MPC members would be under pressure to take measures that would help the country retain exiting foreign portfolio investors (FPIs) amid turmoil in emerging markets (EMs), tame inflationary pressure and help halt external reserves depreciation.

Of more concern to the MPC members would also be that the United States Federal Open Market Committee (FOMC), which determines US interest rate and had signalled that it would likely hike interest rate this month and possibly in December. The Federal Reserve FOMC meets this Tuesday and Wednesday.

Russia’s central bank recently raised its main interest rate for the first time in almost four years, following Turkey in taking steps to defend its currency amid emerging market turmoil. The Russian central bank had raised its benchmark lending rate by 0.25 percentage points to 7.50 per cent.

But South Africa’s central bank last week left its benchmark rate at 6.5 per cent, in a tough decision by the policymakers.

Stock markets as well as currencies in EMs such as Argentina, Turkey, South Africa, Brazil, Mexico, Egypt, South Korea, Philippines and China, have plunged heavily in the past few weeks, even as the naira has remained stable. EMs across board have been under pressure since the US Federal Reserve raised interest rates in June.

In Nigeria, the external reserves have depreciated by 5.7 per cent this quarter, from $47.596 billion as of June 1, to $44.890 billion last Thursday.

The country recorded sluggish growth rate of 1.5 per cent in the second quarter of 2018.

Also, Nigeria’s Consumer Price Index, (CPI) which measures inflation increased by 0.09 per cent to 11.23 percent (year-on-year) in August, compared to the 11.14 per cent recorded the preceding month, the National Bureau of Statistics (NBS) had revealed. That was the first year-on-year rise in headline inflation after 18 consecutive disinflation in the index.

At its last meeting in July 2018, the MPC maintained the benchmark monetary policy rate (MPR) at 14 per cent, retained the cash reserve requirement (CRR) and liquidity ratio at 22.50 per cent and 30 per cent respectively. It had also announced measures to provide cheaper funding for some critical sectors of the economy to boost economic activities through its Real Sector Support Facility (RSSF).

CBN Deputy Governor, Dr Joseph Nnanna, had last month hinted about plans to increase the interest rate in response to higher inflation ahead of the general elections in February 2019.

According to Nnanna, virtually all members of the MPC had supported the idea that “the MPR should increase if inflationary pressures build up.”

Nnanna had said, “These factors would warrant a rate increase to send the right signal to the public, that the central bank will tighten policy to respond to higher inflation. There’s a scope to raise rates before the elections in February.

“The central bank is still in the mood for tightening. How fast are we going to tighten is what members haven’t agreed upon.”

Nnanna said while policy tightening by the United States Federal Reserve was a concern, investors still saw Nigeria as an attractive market, thanks to the stable naira and the yield curve on fixed-income instruments higher than in the US or Europe.

But analysts at FSDH Merchant Bank Limited, believe that the most appropriate monetary policy decision under the current economic and financial market situation “is to hold policy rates at the current levels,” saying the need to “provide necessary incentives for the Nigerian economy to achieve inclusive growth negates an option of a rate increase.”

They added in a report obtained at the weekend: “FSDH Research believes the FOMC of the US Federal Reserve may likely raise the Federal Funds Rate (Fed Rate) by 25 basis points when the committee announces its decision on Wednesday, 26 September 2018.

“A rate hike may further increase global yields with its attendant impact on capital flights from emerging markets and demand pressure at the foreign exchange market. Thus, a rate cut in Nigeria is not appropriate under these situations.”

Also, analysts at CSL Stockbrokers Limited, predicted that there would beno change to the MPR nor the CRR.

“We however expect the committee’s tone to be hawkish when providing forward guidance on the path of interest rates.

“In our opinion, the committee appears to be caught in a whipsaw. While we acknowledge that increasing inflationary pressures and capital flow reversals amidst heightening geopolitical and trade tensions, and rising US interest rates provide sufficient justification for a rate hike, domestic economic growth remains fragile and could be truncated by a rate hike,” they stated.

They noted that less-attractive carry trades fuelled by rising US yields had driven up dollar demand by yield-starved foreign investors and could exacerbate exchange-rate pressures as the 2019 general elections draw closer.

In addition, they stated that the uptick in inflation in August following 18 consecutive months of decline suggested a build-up of inflationary pressure.

“That said, armed with considerable reserves to defend the naira albeit in the short term, and with real interest rates still expected to remain positive (we do not expect inflation will rise so fast as to send real interest rates into negative territory), the CBN risks an accelerated pace of inflation and slower economic growth should it hike rates,” CSL analysts stated.

To Financial Derivatives Company Limited (FDC), also pointed out that this MPC meeting will be pivotal in determining the direction of interest rate, especially at a time of new fiscal policy leadership under a new finance minister.

“While the MPC’s decision can either make or mar the present situation, the decision making process will be particularly difficult, given the backdrop of rising consumer prices, depleting external reserves and potential exchange rate pressure

“Political uncertainties are also affecting investor confidence in the Nigerian economy. As the build up to the 2019 general election intensifies, investors are liquidating their portfolios, resulting in a 9.76 per cent decline (quarter-on-quarter) in foreign portfolio inflows into Nigeria in the second quarter,” it added.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Finance

Emefiele Pledges Accommodative Monetary Policy to Boost Economic Growth

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Godwin Emefile

Emefiele Pledges Accommodative Monetary Policy to Boost Economic Growth

The Central Bank of Nigeria (CBN), Mr. Godwin Emefiele, has pledged to adopt accommodative monetary policy stance in 2021 in order to support economic growth in the country.

Emefiele, said this on Friday, while speaking at a CBN/Bankers’ Committee’s initiative for economic growth, which is a one-day special summit on the economy by bank chief executive officers.

The theme of the summit is: “How to Overcome the Pitfalls of Recession.”

Nigeria’s economy recently came out of recession, according to the Gross Domestic Product report for fourth quarter 2020 released by the National Bureau of Statistics.

Owing to the slump GDP growth of 0.11 per cent that lifted the economy out of recession, Emefiele said it was imperative that, “we do all we can in 2021 and beyond to ensure that we build on the positive momentum and strengthen our efforts at stimulating growth.”

He expressed optimism that with the discovery and deployment of vaccines worldwide, 2021 would be a year of massive global recovery and Nigeria must not be left out.

“The banks CEOs are here, whether by moral suasion or by force, they will have to participate in this journey. In order to drive and sustain this recovery therefore, we need to sustain the accommodative fiscal and monetary policy measures aimed at improving access to finance for households and businesses.

“Secondly, we must prevent a resurgence in Covid-19 related cases. Thirdly, we must ensure that a significant number of our population is significantly vaccinated and also improve foreign exchange inflows into our country,” he added.

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Banking Sector

CIT Microfinance Bank Disburses Over N16bn Loans

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CIT Microfinance Bank Disburses Over N16bn Loans

CIT Microfinance Bank Limited says it has disbursed about N16bn loans since it commenced operations as part of its contributions to the financial sector and empowerment of businesses.

The Managing Director of the microfinance bank, Mr Kingsley Eremionkhale, disclosed this during the company’s 10th anniversary in Lagos recently.

He reiterated that the bank was committed to supporting the growth of small and medium-scale enterprises in the country.

“Since inception, we have disbursed loans worth about N16bn. Our operation is not just about profit-making, but we have impacted many lives, empowered many businesses, and done a lot in terms of our core mandate as a microfinance bank.”

While appreciating its customers who had been loyal to it for years, he said it was concerned about their business success.

The managing director said, “We are part of our customers’ businesses. We provide services beyond lending and savings products and we also give financial advisory services.”

He appreciated the customers who had stayed with the financial institution for many years.

The managing director noted that the MfB is a state-licensed bank operating in Lagos, and a subsidiary of Capitalfield Investment Group.

He also attributed the success of the MfB to the board of directors which it said had been supportive, the management team and its workforce in the past 10 years.

While saying that the bank could lay claims to exponential growth, he said the public should expect more from it.

He also said that it was driving its operations through its digital offerings and our e-channels, to improve its services to our customers.

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Finance

FMDQ Approves Valency Agro’s N5.12bn Commercial Paper

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FMDQ

FMDQ Approves Valency Agro’s N5.12bn Commercial Paper

FMDQ Securities Exchange Limited has announced the approval of the quotation of the Valency Agro Nigeria Limited N5.12bn Series 1 Commercial Paper under its N20bn CP Programme on its platform.

The Exchange said in fostering the development of the Nigerian debt capital markets, it had continued to avail its credible and efficient platform as well as tailor its listings and quotations services to suit the needs of issuers and registration members through innovative and uninterrupted service delivery.

It said in a statement on Thursday that the Valency Agro Nigeria CP debut issue came at a time when the Nigerian economy was bedeviled with soaring food prices, amidst compounding challenges of insecurity.

It said the agricultural sector and its attendant transformation agenda had never been more important in driving increased and sustainable production of agricultural products as well as the derived foreign earnings through exports.

The Exchange said the proceeds from the issue of the CP would be applied by Valency Agro towards meeting the mid-term working capital requirements of the various agricultural produce under its portfolio such as cashew, sesame, cocoa and in value addition prior to export.

The Executive Director, Valency Agro Nigeria Limited, Mr Sumit Jain, was quoted as saying, “We are thankful to our investors towards showing their faith in our agenda to grow the agriculture-focused business with a clear aim to maximise value addition and create employment opportunities in Nigeria.

“We would also like to commend the efforts made by FBNQuest Merchant Bank Limited’s team to build the reach and FMDQ for their unconditional support for the industry”.

The Head, Capital Markets, FBNQuest Merchant Bank, Mr Oluseun Olatidoye, said, “FBNQuest Merchant Bank Limited is delighted with the successful debut of the N5.12bn Series 1 CP issued by Valency Agro Nigeria Limited. This reiterates our effort to enable underserved sectors access the debt markets, optimise their capital structure and further deepen the domestic capital markets.

“We are proud of the instrumental role FBNQuest Merchant Bank played in this transaction and appreciate the trust the management of Valency Agro placed in us to assist them. Our clients remain our priority, and we strongly believe their success is our success.”

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