Connect with us
nairametrics
UBA ads

Columnists

No surprise as MPC retains policy rates, balancing effects between rising inflation and tepid growth

The Monetary Policy Committee (MPC) of the CBN maintained status quo on all policy rates at the meeting which ended the 26th November 2019.

Published

on

Godwin Emefiele, CBN expands scope of regional banks in Nigeria, gives compliance timeframe

In line with our expectation, the Monetary Policy Committee (MPC) of the CBN maintained status quo on all policy rates at the meeting which ended the 26th November 2019. It was a unanimous vote that kept the Monetary Policy Rate (MPR) at 13.5%, the asymmetric corridor around the MPR at +200bps/-500bps, Cash Reserve Ratio (CRR) at 22.5% and liquidity ratio at 30%.

In its post-MPC briefing, the CBN noted that the choice of the committee remained limited. Hiking rates, in recognition of increased upside risk to inflation and mounting external sector pressures would further constraint economic growth; while a rate cut is likely to intensify risks to NGN stability resulting in increased capital outflows.

Pressure points highlighted, the MPC opted to retain policy rates, reflecting its desire to sustain the fragile economic recovery through private credit expansion. Private credit growth improved slightly to 13.08%yoy in October from 12.49%yoy in September, while credit to government declined in October to 85.99%yoy from 114.79%yoy in the previous month.

Late budget cycles, food price hike fuel MPR retention - Experts , policy rates

We interpret the unanimous holding voting pattern as a confirmation of the CBN strong pro-growth bias in line with the recent CBN policies to lower interest rates and bolster non-bank domestic liquidity. Through its recent decisions, the CBN clearly revealed its willingness to support the economic recovery by reducing the arbitrage opportunities available to corporate borrowers and shrinking the size of its balance sheet without impacting foreign investors.

GTBank 728 x 90

Although GDP growth surprised positively in Q3 2019 at 2.28%yoy from 2.12%yoy in Q2, supported by higher oil production and recovery in agriculture, momentum remains fragile and the medium-term outlook is still constrained by persistently weak macroeconomic policy environment and we see little room for the economy to expand above 2.5% in the short-term.

[READ MORE: Capital flows to Nigeria down for the second consecutive quarter by 7.8% q/q]

Headline inflation accelerated by 36bps to 11.61%yoy from 11.24%yoy in September on the back of food price pressures resulting from the negative feedback effect of the partial land border closure. We think the upside risk in price index remains elevated due to the extension of the partial land border closure till at least January 2020, scheduled increase in electricity tariff (by 30%) in January 2020 and increase in VAT (by 2.5 percentage points to 7.5%) in the same year.

Furthermore, we remain concerned by the minimum wage implementation and the adjustment in the exchange rate for computing duty on imports. Therefore, we retain our forecast of no change in MPR in the short-term and we see scope for further support of economic growth via liquidity management. This is premised on the strong reliance on OMO tool by the CBN rather than the less effective MPR.

From external sector standpoint, the current account balance is expected to deteriorate reflecting drags from rising payments for services. Additionally, trade surplus is likely to decline due to increasing imports as relatively stable Naira will continue to stimulate non-oil import demand, coupled with weaker trade activities as a result of the closure of Nigeria’s land borders against foreign trade.

Increased FX interventions have come at the cost of depleting external reserves (down 7.5%YTD to USD39.3 billion last week). Therefore, we expect the NGN to remain vulnerable to external financing conditions as the CBN continues to rely on FPIs carry trade in short-term OMO bills for funding deficit in the current account and stabilizing the external sector.

app

In 2020, we anticipate trade uncertainty to alleviate and global accommodative stance to subsist, softening the aversion for risky assets and supporting foreign flows in the local bond market. Therefore, the short-term yields outlook for H1 2020 could replicate the H1 2019 movements. Decrease in short-dated securities supply and more-dovish outlook on CBN liquidity management in a context of stable currency and rising FPI interest give room for further moderation in the short term interest rates. Against this backdrop, we expect investors to unwind long-duration positions next year due to current account imbalances, leading to a steepening of the yield curve and wider maturity spreads.

________________________________________________________________________

CSL STOCKBROKERS LIMITED CSL Stockbrokers,

Coronation ads

Member of the Nigerian Stock Exchange,

First City Plaza, 44 Marina,

PO Box 9117,

Lagos State,

GTBank 728 x 90

NIGERIA.

 

Click to comment

Leave a Reply

Your email address will not be published.

This site uses Akismet to reduce spam. Learn how your comment data is processed.

Columnists

Telecoms sector remains resilient as broadband subscriptions climb

Broadband penetration grew to 41.3% in June 2020 from 33.31% in June 2019 and 40.1% in May.

Published

on

Telecoms sector remains resilient as broadband subscriptions climb

Despite the adverse impact of the global pandemic on various sectors in the economy, the Nigerian telecoms sector has remained resilient. According to recent data on key industry fundamentals published by the Nigerian Communications Commission (NCC), the total number of broadband subscriptions grew 23.9% y/y and by 2.8% m/m in June 2020 to 78.8m subscriptions.

Similarly, broadband penetration grew to 41.3% in June 2020 from 33.31% in June 2019 and 40.1% in May. In addition, the number of internet subscribers continued to grow in June 2020, up 1.8% m/m and 17.2% y/y to 143.7m subscribers. We believe the m/m uptick in broadband penetration could be due to gradual reopening of the economy.

READ MORE: Exxon Mobil, Chevron record their worst losses in history

We recall that subscriptions declined on a m/m basis in April but showed recovery in May & June, reflecting the resilience of the sector. Industry players in the telecommunications sector continue to invest heavily in internet infrastructure in a bid to improve 4G LTE coverage across the country. Heightened competition among industry players for market share has also forced bundle prices lower, making internet usage very attractive to the average Nigerian.

GTBank 728 x 90

READ MORE: Federal Government to introduce new laws for online businesses  

With the advent of the global pandemic, we believe the growing use of digital channels for daily routine activities ranging from telecommuting, entertainment and social engagement bodes well for continued growth in internet penetration. This will be further supported by increasing smartphone penetration, favourable country demographics and a fledgling social media culture. Nevertheless, we believe the sector still requires more investment to bring it at par with more developed climes. With internet penetration still below 50% (39.58% as at April 2020), we think significant potential exists for telecom and internet service providers in Nigeria.

Download the Nairametrics News App


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

Continue Reading

Columnists

COVID-19 and its impact on the cement industry

Our outlook for the cement industry is mixed due to a plethora of factors…

Published

on

The impact of the restrictive measures put in place during the second quarter to contain the global pandemic was apparent in the financial performance of two of the major players in the cement industry (Dangote Cement and Lafarge) as Revenue was pressured. Specifically, the industry leader, Dangote Cement recorded a decline of 15% in Sales volume in its Nigerian Operations while Lafarge reported a decline of 10%. Notably, the CBN Manufacturing PMI showed that demand for new orders in the cement subsector slowed to 63.6 points at the end of Q2 from 70 points in Q1.

READ: Measures introduced by Nigeria to ensure transparent use of the $3.4 billion IMF loan

In our view, the lockdown in the month of April in three key states across the federation (Lagos, FCT and Ogun) coupled with heavy rainfall in June led to the decline in the industry’s sales volumes during Q2. Furthermore, we think the increased level of government attention on the healthcare sector amidst revenue challenges led to the suspension of most construction projects across the nation. Meanwhile, we highlight that the FG reduced the amount budgeted for capital expenditure by 20% in the revised 2020 budget following the downturn in oil prices which undermined oil revenue. Based on the recent presentation made by the Minister of Finance on budget implementation, the sum of N253.3bn has been spent on CAPEX as at end of May, which pales in comparison to the pro-rated revised budgeted capital spending of N816.70bn and translates to a performance ratio of 31%.

READ ALSO: COVID-19: Abuja Sheraton suffers 88% drop in revenues

Looking ahead, our outlook for the cement industry is mixed due to a plethora of factors ranging from subdued private investment in gross fixed capital formation, rising inflationary pressures on essential food items (which could dampen the quest for capital goods such as housing), increased energy costs due to the devaluation in the local cuurency amidst heightened competition in the industry that may limit industry players from hiking prices to preserve margins. Although, we expect pressure on volume growth to persist in the short term until there is a significant pick up in economic activities, we note that the relaxation of lockdown measures and the low interest rate environment are positive factors that will support the earnings of industry players.

GTBank 728 x 90


CSL Stockbrokers Limited, Lagos (CSLS) is a wholly owned subsidiary of FCMB Group Plc and is regulated by the Securities and Exchange Commission, Nigeria. CSLS is a member of the Nigerian Stock Exchange.

Continue Reading

Columnists

The “new normal” in business and economy

In the new normal, business owners are faced with overwhelming, competing challenges.

Published

on

The "new normal" in business and economy

As the COVID-19 pandemic continues to ravage the world, leaving citizens of the world a new world order, businesses need to navigate their financial and operational obligations. They are also expected to meet the needs of their greatest assets – customers and suppliers.

The crises may have paved way for uncertainties, but it has also created opportunities for sectors to emerge and grow, while some will fall and vanish if not properly managed and strategized as the companies who will stand firm in this era will be those that implemented risk management as part of their business strategy.

While this crisis is first and foremost a public health issue, which has claimed the lives of thousands of people worldwide and still counting, the economic would no doubt be overwhelming and is likely to create major economic meltdown in both the formal and informal sectors

READ ALSO: Airtel Africa’s profit up 12.9%, customer base reaches 111.5 million

The train must be primed to chug along now! In the new normal, business owners are faced with overwhelming, competing challenges. They are surrounded by treacherous waters now darkly infested with COVID-19 sharks. Still, they must continue to dive into the deep end of the global pandemic.

GTBank 728 x 90

A business’s success depends in part on the economic systems of the countries where it is located and where it sells its products. A nation’s economic system is the combination of policies, laws, and choices made by its government to establish the systems that determine what goods and services are produced and how they are allocated. The resources of a person, a firm, or a nation are limited. Hence, economics is the study of choices—what people, firms, or nations choose from among the available resources. Every economy is concerned with what types and amounts of goods and services should be produced, how they should be produced, and for whom. These decisions are made by the marketplace, the government, or both. In the United States, the government and the free-market system together guide the economy.

READ ALSO: UPDATED: Inflation rate jumps to 12.40%, highest in over 2 years

Business owners therefore should have their priorities clearly mapped out; providing support and being a backbone to their people, customers and suppliers. They must achieve all this, whilst simultaneously addressing supply chain disruptions, maintaining stable profit margins, aligning their businesses with evolving demand and changes and identifying potential pitfalls and new growth trends.

Businesses in the new normal require a new mindset to recover from the crises, thereby identifying, analyzing and addressing effective strategies that would help the business return to normality and grow. This is the time to build organizational relationships with strategic partners for proper execution of effective strategies.

Management personnel and stakeholders are quickly turning their attention to the ‘next’; that moment of unpredictable and probably muted economic recovery with newly identified threats and opportunities. This is a new era defined by fast-changing initiatives to shift the cultural norms, societal beliefs and values, such as renewed brand purpose.

READ MORE: IMF expects Nigeria’s GDP to shrink by 5.4% in 2020

app

Leaders, corporate and political, are faced with the urgency to reopen their businesses.

To bridge the gap of uncertainty, reopening would require a series of ‘reinventive’ thinking. The pandemic offers a big opportunity to have companies invest in areas they wish they’d paid more attention to before the crisis. Now, to be more digital, data-driven, and in the cloud; to adopt a variable cost structure rather than fixed, to find its root in e-commerce and security are no longer deferrable agendas.

Consequent to the pandemic, organizations globally are experiencing an unfamiliar change in their workflow processes and harnessing their workforces optimally. Companies are yet to fully understand and determine how working remote working will help achieve corporate objectives beyond the survival hump. Profitability and business models are being cautiously reviewed. Teams and workforces try to function and perform in line with expected deliverables whilst struggling to cope with even more sombre personal and existential challenges in the new normal.

Coronation ads

Organizations, teams and workforces need new and bespoke fitting plans today. They need to formulate strategies and drive policies that can position them advantageously to work out and around the emerging challenges as the state of global health and economic unfolds. All stakeholders have critical roles to play in developing and establishing systematic approaches that promote shared workforce resilience, flexibility and intelligence.

Similarly, the ongoing COVID-19 pandemic has changed customers, employees, citizens and humans’ experiences, attitudes and behavior forever. The norms of behavioral consumer psychology are deviating from the expected curves. Results, though displaying expected changes, are creating sweaty anxiety for boardroom decisions. The crisis has caused a fundamental change in human-human interactions and behavior. In the new world order, companies would necessarily need to review and redesign operational flow and operating models. These changes would impact greatly on design, communication, running expenses, remunerations, investments etc. The definitions of that people need and want has been reshaped and businesses need to blend into the new, emerging ecosystem so they can properly reposition for sustainability and profitability. The global pandemic has created uncertainties and forced companies to reevaluate and reinvent how business operations units are leveraged. It has redefined how digital platforms can be used in supporting and ensuring continuity in the business through and beyond the crisis.

The state of the economy affects both people and businesses. How you spend your money (or save it) is a personal economic decision. Whether you continue in school and whether you work part-time are also economic decisions. Every business also operates within the economy. Based on their economic expectations, businesses decide what products to produce, how to price them, how many people to employ, how much to pay these employees, how much to expand the business, and so on.

Download the Nairametrics News App

GTBank 728 x 90

The crisis has fundamentally changed supply chain management economics and dynamics; we are in uncharted waters. Routes to market are evolving which would inevitably kick some companies off the market and make some others tether on balance. In response to the pandemic, leaders have been mandated to increase their adoption of value chain transformation to help outrun uncertainty. For those who are able to successfully navigate to the other side of this new normal, it becomes imperative to establish strategies for greater resilience and apply lessons learnt to create systems and models that would better prepare companies and stakeholders for further future disruptions.

Continue Reading
Advertisement
Advertisement
first bank
Advertisement
Advertisement
first bank
Advertisement
Heritage bank
Advertisement
beyondperception
Advertisement
devland
Advertisement
GTBank 728 x 90
Advertisement
Advertisement
financial calculator
Advertisement
deals book
Advertisement
app
Advertisement