* Cash Reserve Ratio (CRR) retained at 50.00% for DMBs; and 16.00% for Merchant Banks respectively.
* Liquidity Ratio (LR) left unchanged at 30.0%.
* Asymmetric Corridor retained +500/-100 basis points around the MPR.
The retention of key macro-economic indices at previous levels, after the monetary policy meeting is indicative of policy shift and a pointer to possible monetary easing in no distant time.
Further elucidating the above contention, is the drastic drop in the interest rate, in Treasury Bills Auction concluded on February 19, 2025.
The Auction saw the 91-day bill drop to 17 %, 182-day bill retraced to 18%, while the 364-day bill had a clean shave at 18.43%, shedding 1.89%.
The possible relaxation of tight monetary stance of the Central Bank of Nigeria is corroborated by other developments within the economy in recent times.
A few days ago the National Bureau of Statistics announced a re-based inflation rate of 24.48%, considered a sharp decline from the December 2024 figure of 34.80%.
Alongside and almost at the same time, the Nigerian economy has seen the exchange rate to the US$, stabilizing around N1,510 at the official market window, amid injection of FX into the commercial banks – a fact attested to, by the President of the Association of Bureau De Changes – Mr. Gwadabe – a few days ago.
The relative stability witnessed in FX market can be traced to the CBN introduction of the Electronic Foreign Exchange Matching System (B-Match) and the Nigerian Foreign Exchange Code – initiatives aimed at strengthening market transparency and liquity.
These are in addition to reports, estimating Nigeria’s foreign reserves at $40 billion.
Improved crude oil production, which hit 1.54 trillion in January, if maintained, will support accumulation of foreign reserves and enhance the country’s balance of payment position.
Having reviewed the response of the economy to policy reforms, the Monetary Policy Committee, appears satisfied that, foreign investment and diaspora remittance will be sustained – a most probable reason for the rate-hike relaxation.
While these reports are positive, it is not yet uhuru, as there are still mirages of structural hurdles to overcome.
The level of foreign Direct Investment (FDI) and Foreign Portfolio Investment flows (FPI), remain relatively low, stability of FX supply remain unsustainable in the face of crude oil theft, despite government efforts to reverse the tide, energy cost is still high, with adverse effects on domestic production, resulting in high prices of goods and services and erosion of purchasing power and aggregate consumption.
Equally a concern is the low level of non – oil export earnings, which is very much needed to compliment oil revenue.
The recent increase in telecommunication tariff by 50% will further adversely impact cost, undermining any cost savings elsewhere.
Economic reports, indicates that policy reforms of the Bola Ahmed Tinubu administration are begining to yield dividends.
While this position could be true with respect to certain economic parameters, the full impact is yet to trickle down to the base of the economy.
Last year we saw an adjustment in the unemployment rate by the National Bureau of Statistics, to 5%, in line with policy revision by the International Labour Organization.
For purposes of insight, it is pertinent to question, how the re-basing of inflation rate and recalculation of unemployment rate assists, in our domestic policy formulations.
The answer will be seen in the unfolding realities, not too far, from now.
CAPITAL MARKET OUTLOOK
Of particular importance, is the implications of the monetary policy committee meeting resolutions in shaping capital market activities – particularly the equities segment.
The CBN position signals a future contraction in domestic interest rate for FGN Bonds and Treasury Bills.
The pause in rate hikes is suggestive of further cuts and will lead to low yields in the debt market.
Coterminous with the above position and depending on the effectiveness of our transmission channels, we expect an uptick in activities in the equities space as rational investors and portfolio managers begin to gradually reduce their level of investment in the debt market, channeling, those funds into the equities market, in a bid to reduce their exposures to debt securities, given the foreseeable low interest regime.
This week the equities bourse sustained its bullish trend, with the All Shares Index reaching 108,492.70 points, indicating 0.41% week-on-week appreciation.
Market Capitalization, another performance indicator gained 0.29% week-on-week to close at N67.61 trillion, with investors profiting N95.97 billion, within the period, on a year-to-date gain of 5.41%.
On the flip side, diminution was observed in the volume of trades receding by 17.12% to close at 2.0 billion units in 70,853 deals, leading to value erosion by 10.9% to close N49.98 billion signalling weak investor appetite.
The market scenario is attributable to portfolio re-balancing, profit-taking ahead of expectations of the outcome of the MPC meeting, re-basing of the inflation rate and the relaxation of rate hikes announced at the end of the monetary policy committee meeting.
In the weeks ahead, market activity will be defined by cautious optimism as investors await corporate earning releases and dividend announcements, while appropriately digesting the implications of CBN policy shift, amid envisaged flow of funds into the equities space.
Mr. Isaac Christian Anyalisi, a Chartered Stockbroker, writes from Lagos, Lagos State.
