Financial analysts predict more issuance of commercial papers

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CBN
Godwin Emefiele CBN Governor.

Following the maintenance of the Monetary Policy Rate (MPR) by the Central Bank of Nigeria (CBN), financial analysts at FSDH Research, an arm of FSDH Merchant Bank Limited, have predicted that the issuance of commercial papers by Nigerian firms will increase in the second half of the year 2018.

Commercial paper, in the global financial market, is an unsecured promissory note with a fixed maturity of not more than 364 days. It is a money-market security issued (sold) by large corporations to obtain funds to meet short-term debt obligations and is backed only by an issuing bank or company promise to pay the face amount on the maturity date specified on the note.

Bua group

At the end of its July 2018 meeting, the Monetary Policy Committee (MPC) of the CBN maintained rates, including the MPR, also known as the benchmark interest rate, at 14 percent.

The MPR is the rate at which the CBN lends to commercial banks. This, in turn, serves as the benchmark rate (in theory) which banks lend to customers.

CBN Governor, Godwin Emefiele had stated that the MPC had left the rates unchanged for several reasons including the following:

  • The rising trend of inflation in global markets.
  • Expected liquidity inflow in the 2nd half of the year from the 2018 budget and pre-election spending.

FSDH Research financial analysts, in their latest economic and financial market report, revealed that the MPC intended to deploy unconventional strategies to boost credit creation that would improve the country’s economic growth.

The Head of Research and Strategy, FSDH Merchant Bank, Ayodele Akinwunmi, said

“The MPC is encouraging large corporations to issue commercial papers, which may be bought by the CBN if necessary. FSDH Research believes this measure will increase the issuance of commercial papers in Nigeria in HY2 2018.”

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