The current CBN made his very first policy statement today as a CBN Governor and it was one that sent the markets south. In an apparent depature from Sanusi’s hawkish stance, the new CBN Governor has promised to gradually lower interest rates sighting the need to discourage banks from simply buying risk free government assets instead of lending to businesses.
Interest rates have been stuck at 12% since late 2011 as Sanusi policies continued to push down inflation rate to as low as 7.9% when Emefiele resumed office. Despite Sanusi’s efforts to achieve single digit inflation and stabilize exchange rates, interest rates have been very high for businesses in need of borrowing from banks.
As expected treasury bills yields fell 20 basis points across board to 11.3% soon after his remarks according to Reuters . Nigeria’s benchmark 10-year bond yield was trading flat on Thursday at 12.52 percent, after initially falling 7 basis points on the new central bank governor’s Emefiele’s remarks on interest rates. The 3-year bond yield was down 16 basis points to 11.71 percent.
Investors off course are rushing to snap up short dated debt in anticipation of lower yields down the line. Suddenly, maybe now is no longer the right time to invest in the money market. The stock market may just be the next big thing as investors will look for better yielding securities other than bonds and treasury bills.
It is also likely that fixed deposits and other money market instruments will fall in line with inflation and risk free rates. Thus, if you are the type that invests in TB’s the days of 12% interest may just have been over. It is also likely I my opinion that the current benchmark interest rates may drop further in line with recent inflation rate which may further devalue the naira. These are all my opinion really and may never really happen. However, we have to be mindful of them. In summary, here are my take outs;
- Bank lending rates may drop in the short term and spike up in the long term (due to inflation)
- The Naira may be devalued as the government pursues a relaxed monetary policy
- Fixed deposits and other money market instruments may soon be attractive as they may return higher interest than TB’s
- MPR may drop to between 11.5-11.9% % as early as next month. In fact, I feel it will change
- And for businesses with high cash turnovers, you no longer need to pay a fees on bank deposits. Before now we had to pay 2% and 5% for individual and corporate deposits over approved limits.
What do you think?
