Analysts at WSTC Securities Limited (www.wstc.com.ng) have revealed that the monetary authority’s heterodox policies are yielding results. They added that Monetary Policy Committee’s decision would attract foreign and as well retains flows.
On the recent decision of the Monetary Policy Committee’s decision to maintain status quo, as it leaves key macroeconomic drivers rates unchanged, analysts said they do not expect significant deviation in the course of event in the money market.
The nation’s external reserves dropped below $40 billion mark, just as capital importation came weak, though economy grew but at a slow rate compare with population increase.
The financial services firm expects the Committee’s decision to attract and retain foreign flows on the back of the dovish stance of systematic central banks in the advanced economies and attractive yields on OMO instruments thus supporting reserves.
On money market, WSTC said for now, the primary driver of events in the money market remains the recent CBN pronouncement restricting the Open Markets Operations (OMO) window to deposit money banks and foreign investors only, which has led to the continued decline in rates.
“With the Committee’s decision to hold, we do not expect significant deviations in the course of the events in the money market”, analysts stated.
Analysts also observe that while yields on money market instruments have continued to decline on the back of tried and tested analgesic monetary stimulus (LDR policy, and OMO restrictions) by the CBN, the development bodes well for companies in terms of reduced finance cost.
WSTC’s analysts said: “While we do not envisage a material change in the course of activities in the market, we expect the attractive dividend yields on fundamentally sound stocks relative to the money market yields to support current valuations”.
“Though the FX reserves have been on the decline, we expect that the CBN will continue its intervention in the Investors & Exporters window to stabilise the exchange rate in the near to medium term”, analysts at the firm added.
The Monetary Policy Committee of the Central Bank of Nigeria has hold key rates, as leadership of the apex bank wants border to remain close.
The Committee left monetary policy rate (MPR) on hold at 13.5% on Tuesday, on the back of rising headline inflation which settled at 11.61% in October, 2019.
The Committee also left cash reserve and liquidity ratios unchanged at 22.5% and 30% respectively.
Godwin Emefiele, the Governor of the CBN said at news conference that the decision by the bank’s policy committee was unanimous.
He said the impact of the border closures on prices was “reactionary and temporary” and that the medium-term benefits of the government’s decision outweighed the short-term costs.
He stressed that he would advise the government to maintain the closures in the interests of boosting economic output, which has been recovering relatively slowly in the non-oil sector.
“In view of the uptick in inflationary pressures, (the MPC) decided that the balance of risks was in favour of protecting price stability,” Emefiele said.
Emefiele said a central bank decision to set a minimum loan-to-deposit ratio for lenders had helped lift economic growth to almost 2.3% in the third quarter, adding that the policy must be sustained as it had led to a drop in interest rates.