The International Monetary Fund, IMF on Tuesday approved a sum of $3.4 billion via a Rapid Financial Instrument to Nigeria. The loans come at a period when countries across the world are battling with the Covid-19 pandemic and the crash in crude oil prices.
While the loans do not necessarily come with strings, the IMF did reveal in its press release acknowledging that Nigeria was on the path to unifying its exchange rata and moving towards a flexible exchange rate regime. As Nigerians get acquainted with the terms of the deal, the IMF released more reports shedding more light into what the country might expect to happen in the coming weeks and month should they have their way.
One of such policy changes it demands from Nigeria is a change in some of the most loved monetary policies, currently in place under the Godwin Emefiele led central bank. The CBN Governor has often defended his heterodox policies claiming it is expedient if Nigeria were to dislocate itself from its thirst for foreign imports. The IMF may well be on a collision course with the CBN if it wants the CBN to reverse these policies.
CBN Policies IMF wants to be reversed.
Exchange Rate Unification: The CBN currently maintains a multiple exchange rate regime where it buys and sells forex through several windows. The IMF wants the CBN to collapse these windows into one.
“With the spread across the various exchange rate windows now very narrow, this is also a good moment to immediately move to full and formal unification—e.g., by converging all foreign exchange windows to the I&E window. This critical step to ensuring a well-functioning market would be helped by the CBN’s calibration of its foreign exchange sales in the market at a level commensurate with protecting central bank reserves while taking into account low international oil prices and reduced FX demand. A unified and more flexible exchange rate will be an important shock absorber, especially in turbulent times— with CBN FX interventions limited to smoothing large fluctuations in the exchange rate.” IMF
The CBN already moved towards this after it devalued from N305 to N360 in its official window. However, the rate still differs from that of the BDCs and the I&E window. CBN also does not have a flexible exchange rate and have resisted this for years under Emefiele. This will be one of the greatest ever policy changes in Nigeria’s economic history and goes against every defense President Buhari has put forward defending a fixed exchange rate regime. It will be a huge victory for more market-friendly analysts if this happens under Emefiele and Buhari.
Remove FX Restriction on Imports: The IMF also wants the CBN to remove all FX related restrictions on imports. This includes its flagship ban on the sale of forex to import on 41 items, a major policy thrust of Emefiele.
“Along with exchange rate unification, existing FX restrictions on goods imports should be removed and monetary policy tightening through more orthodox tools (i.e., no discretionary CRR that distorts banks’ liquidity management) resumed to enable the CBN to reach its single-digit inflation target.” IMF
Dropping this policy will be a very difficult one considering how critical it is to the CBN’s import substitution policy. Once it does this, it would have done a complete 360 degrees to one of its most controversial policies. The CBN believes these bans have led to an increase in the local production of rice and a boost to the agricultural sector.
Stop the CRR & LDR policy: Banks hate the CBN’s increase in CRR and the CBN’s frequent unilateral debits of its deposits due to non-compliance of the load to deposit ration monetary policy. The IMF seems to hate that too.
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“Recent regulations to spur lending through the loan-to-deposit ratio, which encourages higher credit risk and a shorter maturity structure, should be eliminated. Banks’ own capital and liquidity buffers should remain the first line of defense, which in the case of Nigeria means that supervisors could temporarily allow banks to drop below the minimum capital requirement (currently 15 percent for large banks, which is significantly above the Basel II 8 percent requirement).” IMF
The CBN’s CRR & LDR policy is at the heart of the bank’s quest to push banks away from the safety of treasury bills and OMO towards the more risky private sector lending. Some naysayers believe the CBN has an ulterior motive which probably includes defending the naira. Getting the CBN to also reverse this policy will be a huge win for banks who have complained that the policy affects its profitability growth.
It will be interesting to see how the CBN reacts to these demands from the IMF and how quickly it could reverse its much-maligned policies if it does agree to reverse them.
GTBank, Cadbury, keep Nigerian Stocks fired up, Investors gain N105.76 Billion
Market breadth closed positive as LINKASSURE led 46 Gainers as against 2 Losers topped by WEMABANK
Nigerian Stock Market ended the Tuesday trading session on a bullish note.
The All Share Index gained by 0.28% to close at 28,777.96 basis points as against +0.28% appreciation recorded previously. Its Year-to-Date (YTD) returns currently stand at +7.21%, and investors gained 105.76 Billion.
- Nigerian bourse trading turnover also ended positively as volume ticked up by +20.44%, as against the +20.44% uptick recorded in the previous session.
- FBNH, ACCESS, and FIDELITYBK were the most active to boost market turnover. CILEASING led the list of active stocks that recorded an impressive volume spike at the end of today’s session.
- Market breadth closed positive as LINKASSURE led 46 Gainers as against 2 Losers topped by WEMABANK at the end of today’s session – an improved performance when compared with the previous outlook.
- FLOURMILL up 9.50% to close at N26.5
- CONOIL up 9.81% to close at N17.35
- CADBURY up 9.21% to close at N8.3
- GUINNESS up 5.63% to close at N16.9
- GUARANTY up 1.96% to close at N31.25
- WEMABANK down 1.72% to close at N0.57
- NEM down 1.46% to close at N2.03
- DEAPCAP flat to close at N0.27
- UNIONDICON flat to close at N10.95
- MOBIL flat to close at N178.3
Nigerian Stocks were all fired up at Tuesday’s trading session. The surge is partially attributed to the leading blue-chip stocks that includes GTBank, Cadbury, Conoil, and Flour mills.
- Buying pressure got intensified as Nigeria’s major export earning – crude oil recorded impressive gains amidst the falling US dollar.
- Nairametrics, however, advises that you seek to buy stocks from a certified stockbroker, as some local equities exhibit cyclic returns.
Flour Mills reports N9.9 billion profit in HY 2020/21
The increase in profit before tax was largely driven by the agro-allied segment.
Flour Mills Nigeria, announced its unaudited 2020/21 half-year financial results today, showing continued growth with a Profit after Tax of N9.9 billion for the six months ended 30th September 2020.
What you should know
- Flour Mills’ revenue was N355.1 billion, compared to N270,8 billion in H1 2019/20.
- The Group’s profit before tax was N14.6 billion, compared to N8.6 billion in H1 2019/20. The increase in profit before tax was largely driven by the agro-allied segment, which generated a profit of N6.3 billion compared to a loss the previous year.
- The agro-allied segment saw very strong improvement in the edible oils and fats, protein, and fertilizer businesses, following the investments over the last few years.
- The Group’s profit after tax was N9.9 billion, compared to N5.9 billion in H1 2019/20.
- FMN continued to show sustained growth in key segments driven by the closure of the Nigerian border since August 2019.
Despite prevailing economic headwinds, the Group continued to show sustained growth in key segments driven by the border closure since August 2019.
As the FMN key segment continues to capitalize on this development due to the strategic placement of the Group’s business in the industry.
This development led to a strong performance in edible oils and proteins supported by agro-inputs (fertilizer) and agro-distribution and aggregation structures.
In line with FMN’s growth strategy, the edible oils and fats value chain saw a significant year-on-year increase of 32% in volume, turning in a profit when compared to the loss in H1 2019/20.
However, volumes for the protein value chain also increased by 18% year-on-year, while the starch value chain was up by 31% year-on-year.
What they are saying
Commenting on the result, Paul Gbededo, the Group Managing Director /CEO, stated; “With this result, our business has once again shown resilience, by following the path of sustainable growth despite the prevailing challenges in both the local and global economy.”
He further assured that “in line with our vision to continue to grow value for our investors, Management will for the remaining part of the financial year continue to concentrate on improving operational effectiveness through accelerated strategies for Group-wide cost optimization, which will ensure sustainability in the current market climate, while we continue to invest in growing the business further.”
U.S dollar drops over resurging COVID-19
The U.S dollar dropped amid worries about the second wave of COVID-19 caseloads in the emerged markets.
The dollar pulled back some gains recorded on Monday against most of its major rivals at London’s trading session, amid worries about the second wave of COVID-19 caseloads in the emerged markets that include France, Germany, and the United States.
Against a basket of major global currencies, the U.S dollar dropped by 0.13% at the time of this publication.
Also, the highly contested U.S election made currency traders a bit cautious about taking large currency positions.
However, since the U.S election is about a week away, many currency traders appear to have already figured out their positions.
Quick fact: The U.S. Dollar Index tracks the greenback against a basket of major global currencies such as the Japanese yen, British pound sterling, Swedish Krona, Euro, etc. Individuals hoping to meet foreign exchange payment obligations via dollar transactions to countries like Europe, and Japan, would need to pay more dollars in fulfilling such payment obligations.
What they are saying
Stephen Innes, Chief Global Market Strategist at Axi in a note to Nairametrics further gave insights on the macros prevailing at the currency market
“The markets want to load up on currencies but are still dealing with the fool me twice syndrome, as inaccurate polls from 2016 remain fresh in their mind and are wary of making the same mistake twice in a row.
“And this has introduced significant bias for the past week. Traders want to get involved but are holding back, fearing the worst-case of a socially disruptive outcome and have not fully started to take heart in the improved prospects of a bipartisan stimulus agreement even as the dollar sits on the brink of the next leg lower.”
“Adding more pressure on the dollar in the midterm,” are comments made by Federal Reserve Chair, Jerome Powell, stating an accommodative shift in the central bank’s approach to inflation is increasing pressure on the greenback as currency traders interpreted that U.S interest rates could remain lower for a longer period of time.