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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.

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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Banking Sector

Access Holdings Plc Plans $1.8 Billion Capital Raise

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Access bank

Access Holdings Plc, the parent company of Nigeria’s leading bank, Access Bank Plc, has unveiled ambitious plans for a $1.8 billion capital raise aimed at fueling its expansion efforts over the next four years.

The strategic move comes as Access sets its sights on becoming one of the largest lenders on the African continent.

During a conference call with investors in Lagos, executives outlined the company’s intention to raise $1.5 billion, or the naira equivalent, through the issuance of shares, bonds, or other financial instruments.

Also, Access aims to generate up to 365 billion naira ($257 million) by selling shares to existing investors.

Bolaji Agbede, acting group chief executive officer, clarified that the current fundraising initiative primarily involves a rights issue.

The capital infusion is earmarked to support Access’s ambitious growth plan, which commenced last year.

The bank intends to expand its footprint into new markets, including Morocco, Egypt, and the United States, as part of a broader strategy to double the share of assets outside its home market by 2027.

With operations spanning 22 countries, including the United Arab Emirates and the UK, Access Bank is positioning itself for significant international growth.

The recent appointment of Bolaji Agbede as acting group CEO follows the passing of co-founder and former CEO, Herbert Wigwe, adding a layer of significance to the bank’s future direction.

Access’s acquisition of National Bank of Kenya Ltd. underscores its commitment to expanding its presence in East Africa’s largest economy.

As Access Bank charts its course for expansion, the $1.8 billion capital raise signals its determination to seize opportunities in a rapidly evolving financial landscape, both domestically and across the African continent.

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Finance

OPEC+ Production Cuts and Geopolitical Tensions Propel Oil Price to Over $87

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Crude oil - Investors King

Oil price surged past the $87 price level on Thursday on the back of production cuts by OPEC+ nations and escalating geopolitical tensions.

Brent crude oil, against which Nigerian oil is priced, rose by $1.39 or 1.6% to $87.48 a barrel, its highest level since October 27.

OPEC+, the alliance of major oil-producing nations, has remained resolute in its commitment to curtail output, effectively tightening the supply of crude in the market.

Despite calls for increased production to alleviate soaring prices, the alliance has opted to maintain its course, further buoying the market sentiment.

Simultaneously, geopolitical tensions have added fuel to the fire. Attacks on Russia’s energy infrastructure, particularly by Ukraine, have sparked concerns over potential disruptions to the global oil supply chain.

Despite diplomatic efforts to deter such actions, the situation remains precarious, contributing to market anxieties.

Analysts suggest that these price surges may have long-term implications for global economies, particularly for oil-importing nations heavily reliant on stable energy prices.

Furthermore, the impact of rising oil prices on inflation and consumer spending patterns remains a point of contention among economists and policymakers.

As the world watches with bated breath, the trajectory of oil prices hinges on a delicate balance between geopolitical developments, OPEC+ policies, and the broader economic landscape.

For now, the $87 threshold serves as a stark reminder of the volatility and interconnectedness inherent in the global energy markets.

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Insurance

Heirs Insurance Group Unveils Revolutionary Website for Seamless Insurance Experience

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Heirs Life Assurance- Investors King

Heirs Insurance Group has launched a website designed to revolutionize the insurance experience for its customers.

With a focus on simplicity, accessibility, and personalized service, the new website aims to streamline the process of obtaining insurance coverage and empower customers to make informed decisions about their insurance needs.

The website boasts a range of innovative features that make navigating insurance options easier than ever before.

From simple and intuitive navigation menus to personalized insurance recommendations, the website is designed to guide customers through every step of the insurance process quickly and efficiently.

According to Ifesinachi Okpagu, the Chief Marketing Officer of Heirs Insurance Group, the new website embodies the company’s commitment to delivering exceptional customer service.

“Today’s customers want simplicity, and this new website delivers on that request,” Okpagu said. “We are empowering customers to take control of their lives, their businesses, assets, and their most cherished people.”

One of the key features of the website is its personalized insurance experience, which takes customers through a short journey to help them identify the best insurance plan for their needs.

Whether customers are looking for coverage for their home, car, business, or loved ones, the website provides tailored recommendations to ensure they find the right insurance solution quickly and easily.

With its user-friendly interface and innovative features, the new website from Heirs Insurance Group sets a new standard for the insurance industry, making it easier than ever for customers to protect what matters most to them.

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