Excess liquidity pushes market rates to near zero

By Ade Ogidan, Godfrey Okpugie and Chijioke Nelson   |   30 November 2015   |   2:46 am  
capital market- image source aspec

capital market- image source aspec

Govt raises unit for fiscal prudence

WITH the relaxed monetary policy of the Central Bank of Nigeria (CBN) sustaining the rising profile of financial market liquidity, it has pushed the rates of the inter-bank traded instruments to near zero per cent.

The interbank traded instruments include the Open Buy-Back (OBB), Overnight and the Nigerian Interbank Offered Rates (NIBOR).

The average liquidity for the past nine weeks that the apex bank started the expansionary policy estimated at N600 billion, had last week, moved to N708.9 billion, causing the Open Buy Back (OBB) to go for 0.9 per cent, with the overnight rate transacted at 1.3 per cent earlier in the week.

However, as the new interest rates policy by CBN hit the system towards the end of the week, which also coincided with the maturity of N162.4 billion Treasury Bill instrument, the OBB and Overnight rates eased further to 0.7 per cent and 1.1 per cent respectively.

In another development, the Federal Government has established an Efficient Unit (E-Unit) in the Ministry of Finance, to ensure fiscal prudence in budget’s implementation.

Already, the Supervising Committee for the unit is expected to be inaugurated today in Abuja, with the Minister of Finance, Mrs Kemi Adeosun as chairperson, while Patience Oniha, an experienced banker and chartered accountant, will be the Project Leader. She had worked with Ecobank Nigeria, Standard Chartered Bank, KPMG and is currently a Director in the Debt Management Office (DMO).

Other members of the committee include Head of Service of the Federation, Accountant-General of the Federation, Auditor-General of the Federation and Director, Budget Office of the Federation.

Members drawn from the private sector include a former President of the Institute of Chartered Accountants of Nigeria, Alhaji Kabir Mohammed; a Partner with KPMG, Kunle Elebute; and Chief Financial Officer, Access Bank Plc, Seyi Kumapayi,.

In yet another development, the continued slide in the prices of some equities, which has greatly eroded the amount of money people invested in stocks has been described by the Chief Executive Officer of the Nigerian Stock Exchange (NSE) Mr. Oscar N. Onyema (OON) as not only peculiar to Nigeria but worldwide.

Onyema disclosed this at the weekend in a speech delivered at the 2015 Capital Market Correspondents Association of Nigeria workshop, which took place in Lagos.

While describing the theme of the workshop – ‘Effective Reporting of Changes in the Nigerian Capital Market,’– as apt and timely, he declared: “We (Nigerian capital market) are not the only one affected by these global developments. Of all the 24 exchanges in Africa for instance, 20 are experiencing a downturn.”

He, however, advised that opportunities still exist for investors in stocks in spite of the current downturn in the capital market.

“If you look at large, mid and small cap securities; mid cap securities have done well, they have returned about six per cent positive. Now the whole market is about 18 per cent down and that is because of the weight of the large cap securities.

“So, it is important for investors to dig deeper and understand the dynamics of the market with the help of professionals,” he said, adding:

“Investors also need to understand that there have been significant sell-offs between last year and this year and it could present opportunity.

“Again, it is important to do the analysis, understand where those opportunities are but certainly there are opportunities, not only in the equity side but across the various asset classes.”

According to a statement from the presidency, the principal objective of the Efficiency Unit is to ensure that every government expenditure is necessary and represents the best possible value for money.

The statement noted: “The move was in line with the current administration’s resolve to institute reform policies that will ensure effective management of the nation’s economy and reduce cost of governance, which informed President Muhammadu Buhari’s approval for the establishment of an Efficiency Unit (E-Unit) in the Federal Ministry of Finance.”

The statement pointed out that “available records have confirmed that presently, the nation’s recurrent expenditure completely dwarfs capital expenditure by a ratio of 84/16. This includes non-wage related overhead expenditure such as travel costs, entertainment

Meanwhile, analysts have hinged the expected rise in credit on the passage of the national budget, which would show the direction of the economy.

The analysts say the likelihood of increased credit by banks to the private sector in the immediate is remote, but would be significant in the medium term, because real sector risks would need to be repackaged by banks, but first addressed in the budget.



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