By FELIX OLOYEDE
Despite reiterated assurance of interest rate downward review from the Central Bank of Nigeria (CBN), Nigerians may not see adjustment of monetary policy rates this year, Ayodeji Ebo, Chief Executive of Afrinvest Securities Limited has stated.
The CBN governor, Godwin Emefiele had last week Wednesday said the financial regulator plans to begin a gradual rate cut by the end of the first half of the year as inflation continues to subside. Inflation rate which had risen to almost 19 per cent January last year has slowed down 11 consecutive times to 15.37 per cent in December, according to National Bureau of Statistics data released earlier this month.
Benchmark interest rate has been pegged at 14 per cent in July 2016, but Emefiele in an interview assured that once inflation gets to low double digits “and high single digit happens, then it should be easy for MPC to begin to look at easing. I want to think that between the end of the first and second quarter, we should begin to see easing.”
However, Ebo while speaking at the Finance Correspondents Association of Nigeria (FICAN) Economic Outlook with theme: ‘Nigeria Economy and Financial Market Outlook: 2017 Review and 2018 Outlook’ held at the FICAN Centre, Lagos last week, noted that a cut in rate would impact rates at the money market, causing investors to consider putting their funds in other countries where the risks are not as high with a good enough returns in investment.
“This will affect the current stability at the foreign exchange market and that is what the government would not want at a time the country is approaching an election period.” He explained further that while the argument for a cut in rates is for increased lending to the real sector, a lower benchmark interest rate would not result in increased lending by banks.
“Bringing down the MPR will not translate to improve lending by the banks. There is nothing like patriotic lending because we have to grow the economy. The banks will not use private money to grow the economy when they still see there is evident risks within the space. It is about the risk environment,” the Afrinvest Securities boss further explained.
He added that the introduction of the Investors’ & Exporters’ Forex Window has helped significantly in restoring stability in the foreign exchange market, disclosing that the apex bank has injected $15.9 billion in nine months in its weekly intervention in the market.
He also said the Investors’ & Exporters’ Forex Window has recorded over $27.8 billion in turnover and the current account stabilised in surplus position, expanding to $9.6 billion annualised in nine months, from $2.7 billion in fiscal year 2016.
“Foreign portfolio investments provide liquidity and confidence to the market. And keeping the interest rate at 14 per cent will help keep them coming,” he said.
Speaking on loans to small and medium enterprises, he said delay and outright non-payment of borrowed funds by SMEs is making it difficult for key lenders within the sector, including Bank of Industry to grant further credits to operators.
He said it is only when loans are repaid on timely basis that the lender has more capacity to lend to their borrowers.
He said that inflation rate is still higher than Monetary Policy Rate, which makes it easier for investors to go for fixed income securities like Treasury Bills, Bonds and other instruments that help investors create lasting wealth.
Ebo said the year 2018 remains an opportunity for investors to make money in both equities and fixed income securities, but advised investors to time their entry and exit accurately in order not to lose their funds.
According to him, there is strong correlation between oil price rise and equities performance, adding that investors always look out for profitable businesses and those with great prospects.
Speaking on the stability in the forex market, he said rates convergence has already been achieved by the CBN, adding that with low exchange rate margin, speculators have virtually abandoned the market.
“Foreign investors also consider the margin between both official and parallel market level. When there is little or no volatility in the market, that gives foreign investors’ confidence. The naira gained 35 per cent year-on-year against the dollar to close at N363 to dollar by year-end in the parallel market,” he said.