…CBN liquidity management
The debt management office (DMO sold a total of … billion naira in treasury bills this week at mixed yield in response to market sentiments.
The mode of investors’ response to the market this week also reflects the reading of the debt market and the economy at large by players in the market.
This could also be a signal that the regulatory bank may further slash its key interest rate at the next Monetary Policy Committee meeting holding on May 17.
From all indications, the apex bank seems more interested in allowing more liquidity in the market. In the month of April, the Central Bank of Nigeria (CBN) sparingly conducts the Open Market Operation (OMO) in mopping up perceived excess liquidity from the banking system.
Relatively, interbank interest rate has remained below the benchmark interest rate of 13.50 percent for the better part of the last month and flowing into the new month of May.
Against the backdrop of the last reduction in the benchmark interest rate to 13.5 percent from 14 percent, the CBN may be signaling its intention to encourage commercial lenders to lend more to the productive sector of the economy.
The naira has been relatively stable at all the segment of the forex market in spite of anxiety by some players that a reduction in interest rate by the CBN could trigger depreciation of the local currency.
With more liquidity in the market and less room in the fixed income market for banks to dump their excess cash, it is possible that the commercial lenders may be compelled to be more flexible in lending to the productive sector of the economy.
This may also result in increase in employment and productivity and consequently on the Gross Domestic Product (GDP) figure at the end of the second quarter.
...MTN proposed listing on the NSE and Sanusi’s Appointment
The local unit of the South Africa’s telecoms giant MTN Nigeria this week appointed the former CBN governor and the current Emir of Kano, Lamido Sanusi into its board of directors. His appointment as a non-executive director will take effects as from July 1, 2019.
The news was received by the market with clear optimism that the appointment was done in clear expectation of the long overdue proposed listing of the company on the Nigerian Stock Exchange (NSE).
Sanusi, an outspoken banker and economist was governor of the CBN for four and half year as his five year tenure was truncated by the then President Goodluck Jonathan over his controversial claims that $20 billion belonging to the federation account was missing from the Nigerian National Petroleum Corporation (NNPC) accounts.
Though a forensic audit of the account of the NNPC was conducted, the report has not seen the light of the day till date. However, the government of the day regarded the claims by Sanusi as an affront and an attempt to bring down the government. He was replaced at the apex bank by Godwin Emefiele, who will be finishing his tour of duty in June.
However, many market players believed that Sanusi will bring his expertise to bear on the proposed listing and subsequent Initial Public Offering (IPO) of the telecoms giant in the future.
Sanusi appointment must have been influenced by the old tradition where foreign companies appoint influential northerner into their board to gain some advantage of such appointee connection with the government.
His appointment may be intended to ease thing for the company which has in recent time ran into storm with government on issue of tax, violation of regulatory rule on sim registration and some unethical labour practice.
...MPC meeting expected to further lower rate or hold
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to meet between May 20 and 21, 2019 to review the economy and chart a way forward.
At its last meeting, the rate-setting committee reduced the Monetary Policy Rate (MPR) usually refers to as benchmark interest rate to 13.5 percent from 14 percent which it has retained for over one year.
The move, which caught the market unexpected, was seen as the regulatory bank’s response to calls by the organized private sector for a reduction in lending rate by commercial banks to boost productivity in the economy.
However, market players believed the rate slash was not done in isolation of the development in the economy. For instance, inflation rate has fallen to 11.25 percent from 18.5 percent three years ago.
Besides, the local currency is stabled against the dollar for more than a year, providing the needed confidence for the regulatory bank to tinker with the benchmark interest rate.
Though market is yet to feel the impact of the rate cut on lending to the productive sector, however expectations are that the pass on effect could take some time to be noticed on the cost of fund and productivity in the economy.
A further reduction in the benchmark rate around the current inflation rate could further leave commercial lenders with more cash to play around with and providing them the opportunity to explore lending to some sector of the economy.
Some analysts are not comfortable with a further slash in interest rate at the next MPC meet; rather they prefer that the apex bank should sustain the present rate and watch its impact on the economy in view of the approval of the new minimum wage by the government.
Increase in wage could trigger increase spending by workers and consequently impact negatively on the inflation rate.
Like what happened at the last MPC meeting, a major surprise could be awaiting the market as the governor of the CBN, Emefiele holds his last MPC meeting. To change the present rate would largely depend on the reading of the economic trend by the 11 wise men in the MPC.
…Godwin Emefiele to bow out of CBN in June
The governor of the central bank (CBN) Godwin Emefiele will bow out of office in June, which can be confirmed by this reporter. His five-year tenure will run its full course by June 3, 2019, being the anniversary of his appointment five years ago. He is expected to step down from office as President Mohammadu Buhari seems unwilling to grant him another term in office.
From available record, no CBN government appointed after Paul Ogwuma has enjoyed two consecutive term in office. Joseph Sanusi and Charlse Soludo appointed by President Olusegun Obasanjo spent one term in office, same for Lamido Sanusi appointed by Umaru Yar’adua.
Emefiele, a former chief executive of Zenith Bank was appointed as governor of the regulatory bank in June 2014 to replace Lamido Sanusi, current Emir of Kano who was suspended from office by the then President Goodluck Jonathan because of his audacious challenge of the integrity of the government.
He would be remembered for his tenacity in sustaining multiple exchange rates against all odds and criticism by the international financial institutions and local analysts who predicted woes for the local currency unless he reverses his policy.
The naira at some point depreciated to around 550 naira to the dollar on the parallel market, spurring some economist to predict that the naira could hit one thousand naira to a dollar at the rate it was going them.
Thanks to the introduction of the Investors’ and Exporters’ foreign exchange window in April 2017 by Emefiele, which boost the inflows of dollar from offshore investors interested in local debt and equity markets, the local naira shortly after the establishment of I&E window reversed its loses. Aside the introduction of I&E forex window, the recovery in oil price also help to sustain a positive outlook for the naira.
Largely, Emefiele management of the economy from the monetary policy perspective have been positive with inflation rate down from around 18.5 percent high to 11.23 percent during his tenure and a relatively stable banking industry, some people are willing to give him a pass mark on his performance.
However, there are many economists and bankers who regarded his tenure as a period of locust in the apex bank life.
A senior banker once accused him of coming to destabilize and bastardise the foreign exchange market with his foreign exchange policy that encourages multiple exchange rates. He was also accused of not doing enough to strengthen the banking industry and instill sanity in the system.
Who takes over from him remains a matter of conjecture by market players as characteristic of President Buhari, he may take his time to select a replacement while the most senior deputy governor hold forth at the regulatory bank in the interim.
A number of names have been flashed as potentials for the office of the CBN governor by some analysts but these might just be speculative until the president makes his choice known. There are strong indications that the president may appoint someone from the North to take over the reign at the regulatory bank.
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