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Interest Rate Cut Threatens Foreign Portfolio Investments – Analysts

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Interbank rate
  • Interest Rate Cut Threatens Foreign Portfolio Investments – Analysts

Analysts have said the reduction of the Monetary Policy Rate, also known as benchmark interest rate, may dampen foreign investors in the nation’s stock market.

The Monetary Policy Committee of the Central Bank of Nigeria on Tuesday reduced the MPR from 14 per cent to 13.5 per cent.

The MPR had been held at a record high of 14 per cent since July 2016 when it was hiked by 200 basis points from 12 per cent.

The analysts, who spoke in separate interviews with our correspondent on Wednesday, said the current interest rate, when compared with those of developed and emerging economies, was still quite attractive.

The bonds market recorded a decline as yields dropped to around 13 per cent across maturities on Wednesday on minor buying interest, traders told Reuters.

The traders said low liquidity on the interbank market hampered deals, adding that yields fell from as high as 15 per cent in February after the apex bank lowered the rates at which it sold treasuries at its last auction.

Banking sector credit doubled to N80bn on Tuesday from the previous day but the amount of maturities due to be repaid between now and August is not sufficient to boost liquidity, traders said.

The stock market, which is beset by worries over low growth, dropped by 0.67 per cent on Wednesday as brokers say the rate cut was too little to stimulate the economy.

Sell pressures dominated the equities market as investors lost N78.7bn.

The market capitalisation of equities listed on the Nigerian Stock Exchange dropped from N11.671tn on Tuesday to N11.592tn on Wednesday.

The Managing Director, Afrinvest Securities Limited, Mr Ayodeji Ebo, said there would likely be an initial or short-term reaction at the fixed income market following the cut in MPR.

He said, “I feel that the decline will be short-lived. At the equities market, we should not expect to see any major reaction as it is not expected to benefit from the decline because the structural issues are still there. It is only when we see old policies that can shake investor sentiment before we can see a change in direction in the equities market.

“Foreign portfolio investors have been exiting the market, but we don’t expect them to increase the momentum. We will still continue to see some interest because if the fixed income becomes a bit unattractive, there may be some investors that will try to take position in the equities market but we don’t expect the FPIs to exit.”

Ebo stated that the interest rate, based on current levels, was still attractive compared to what was obtainable in developing markets and across emerging markets.

A research analyst at Vetiva Capital Management Limited, Ifedayo Olowoporoku, said the effect of rate cut on the stock market would be limited majorly because it was not substantial enough to change the sentiment of an investor to re-allocate investment from fixed income to equity.

She said, “In the fixed income market, we have seen yields decline since the start of the year. We can characterise this rate cut as a way of the Monetary Policy Committee catching up to market realities. On average, we do not expect the stock market to react at all.

“In both markets, we may have minimal investor reaction to this cut. For the FPIs, they are invested in fixed income on the secondary market, which has seen a decline of about 200 basis points way before the rate cut.

“In theory, lower interest rates discourage investors, but this was a 0.05 per cent reduction, which is not substantial enough to change their sentiments.”

Olowoporoku forecasted that in the next meeting, the MPC would hold the rate, but might later increase the rate as the Federal Government planned to increase minimum wage, which she said would pump a lot of money into the economy and likely raise inflation level.

Analysts at CSK Stockbrokers Limited said, “We believe the CBN will not be so aggressive with loosening as concerns over portfolio flows should still remain high on the CBN’s priority list.”

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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micro-finance-bank

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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