Economy in ‘calm mode’ over Presidency’s silence



With the passage of one week after the inauguration of the new administration, the financial market has assumed a calm momentum and eagerly waiting for an economic blueprint that will set the tone for activities.

The coming of the new administration, from the announcement of the result to the inauguration, has been greeted with optimism, causing rebound to market indices, naira exchange and securities’ rates, but currently looking for direction and headed towards uneasy calmness over President’s silence on his economic blueprint.

Already, analysts said the calm disposition border on uncertainties, which may arise from expected sudden economic reforms and macroeconomic changes.

The first casualty is the Nigerian Stock Exchange (NSE), which All-Share Index (ASI) has tumbled 1.9 per cent week-on-week, due to speculations bordering on key macroeconomic policy direction of the new government, while the bond market has returned 7.9 per cent year-to-date, with trading momentum remaining subdued.

Analysts at Afrinvest Securities Limited, in the Weekly Market Update, noted that foreign portfolio investors whose participation in the Nigerian market, accounting for over 55 per cent from 2011 to 2014, appeared to have remained on the sidelines amid the uncertainties, particularly on exchange rate and economic reforms.

“In a related development, fuel scarcity continues to bite as long queues are seemingly becoming the new normal across the states. This is unexpected in our view given some marketers’ apparent reluctance to sell at regulated prices amid fears of importing at a loss should subsidy payment be officially removed. We believe this remained largely hinged on the President’s muted position on subsidy payment on imported fuel.

“With five days since his ascendency, the only noteworthy action taken by the President relates to insecurity and ending insurgency in the country. Nevertheless, we believe the President must set the tone for the market by making a clear pronouncement on critical concerns in the economy, including the oil and gas sector and subsidy removal, exchange rate and the framework for monetary policy, the power sector crisis and the future of infrastructure in Nigeria,” they said.

However, beside Nigerian bourse, equities across the globe trended southwards, including the developed markets, as the dark cloud on global economy lingers.

In the emerging market economies, performance was mixed, as well as those in major African markets like Kenya and Ghana, while Egypt depreciated by 1.5 per cent week-on-week.

Meanwhile, there was no significant change in liquidity levels at the beginning of last week, hence the money market rates traded within the same band it traded in the previous week.

The average Open Buy Back (OBB) rate and the Overnight rate ended the week at 8.1 per cent and 9.2 per cent respectively compared to OBB at 9.5 per cent and Overnight rate at 10.8 per cent in the previous week.

Last week had opened with a liquidity balance at N188.2 billion, with money market rates settling at 8.6 per cent for OBB rate and 9.1 per cent, Overnight rate, but inched slightly higher on Tuesday to 9.7 per cent and 10 per cent for OBB and Overnight respectively, as CBN mopped up liquidity through an Open Market Operation (OMO) auction worth N70 billion.

With Treasury bills worth N115.9 billion auctioned on Wednesday, liquidity level however reduced, hence OBB and Overnight rates settled at 9.4 per cent and 9.8 per cent respectively.

On Thursday, OMO maturity worth N70.6 billion hit the system, subsequently, rates declined to 8.5 per cent (OBB) and 8.9 per cent (Overnight), while liquidity level is expected to remain within the current level as OMO maturity worth N55.9 billion would be redeemed this week.

The Nigerian Interbank Foreign Exchange Market rate, which closed on Monday, last week, at N199.08/$, gaining two kobo appreciation, recorded three basis points appreciation at the close of the week.

However, at the Bureau de Change (BDC) segment of the market, which also recorded a relatively calm trading activities, exchanged the local currency at N217.00/$ on Monday and Tuesday, before rising marginally to N216.50/$ on Wednesday.

The CBN’s reduction in clearing rate from N197/$ to N196.95/$, showed a relatively less volatile trading sessions for the week and low demand for the greenback, but there is a projection that the currency market rate would be largely driven by likely policy pronouncements from new government this week.

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