Market to rally this week as over N760b liquidity ease trickles
Group seeks urgent actions to forestall mooted recession
There were indications that the money market activities may assume a renewed upward swing this week, with the net increase in liquidity projected at over N760 billion resulting from the reduction in Cash Reserve Requirement (CRR) begins to hit the system.
With the liquidity ease for the deposit money banks, the increased activities would be expected through their participation in various Open Market Operations by the monetary authorities.
The Monetary Policy Committee, had last week, reduced CRR by six per cent from 31 per cent; retained the Monetary Policy Rate (MPR) at 13 per cent; and maintained the Liquidity Ratio at 30 per cent.
But with CBN’s July data, which indicated that approximately N4.4 trillion was sterilised by the apex bank through CRR, the new reserves requirement at 25 per cent has been projected to result to a net CRR credit of approximately N767.4 billion to banks.
However, takings from the Standing Lending Facility (SLF) of the CBN would reduce substantially while OMO activities will resume in earnest to manage ensuing liquidity surfeit in the financial system.
“We expect a slight re-pricing of banking stocks- especially Tier-1 Banks —against the backdrop of a perceived gross earnings upside potential post-CRR cut. More significantly, we expect buying activity to increase in the Treasuries and bonds markets, hence we expect yields to moderate.
“Despite the projected improvement in banking sector performance and capital market activity, the impacts of the decision on the real sector, especially in an atmosphere of slowing growth, will be majorly determined by the complimentary actions from the fiscal authorities in terms of longer-term structural reforms.
We believe that monetary policy may be already approaching its limit in stimulating growth with the authorities only constrained to the use of the CRR instruments, which impacts are limited to the financial sector.
But in reaction to the series of poor economic indicators, which have prompted CBN’s multiple monetary policy responses in recent times, the Centre for Social Justice (CSJ), has called on President Muhammadu Buhari and relevant authorities to take immediate and urgent steps, to avert the projected recession, before it hits the economy.
The Lead Director of CSJ, Eze Onyekpere, said the government should immediately constitute his cabinet or in interim, appoint the Minister of Finance and Economy, as well as the Economic Management Team.
The government should now unveil the economic agenda of this administration and give Nigerians the opportunity to make inputs where there is need for modification and fine-tuning.
“Public and private stakeholders cannot continue groping in the dark and imagining the content of government’s economic agenda. The unveiling of a holistic framework has become a matter of urgent national importance.
“Ceate synergy between fiscal and monetary policy, unveil the Medium Term Expenditure Framework and Fiscal Strategy Paper 2016-2019 as required by the Fiscal Responsibility Act and open up public dialogue on macroeconomic policies for the medium term. The MTEF should have been ready by the end of June 2015; but it is better late than never.
“Take steps to release resources for investment in capital projects considering that no funds have been released for the implementation of the entire 2015 federal capital budget. This will facilitate and attract private sector investments and help kick-start economic revival.
“Critically review the continued subsidy for imported petroleum products. As an alternative, design a subsidy regime that will encourage local refining and value addition in the petroleum sector. The Government is invited to consider the complete removal of petroleum subsidy as from the 2016 federal budget,” he said.
He added that CBN should take steps to further reduce the CRR to not more than 10 per cent and closely monitor the sources of demand pressure on the foreign exchange market to ensure that funds are not diverted to demands for foreign exchange, but applied to “specific growth enhancing and asset creation lending by banks”.