A Vision for Nigeria’s Future
Prologue
In yet another critical week for the country, the 29th edition of the Nigerian Economic Summit outlined a vision of rekindled hope characterised by astronomical growth and development. A significant move emerged as the Standing Deposit Facility (SDF) limit on placement earnings was removed, ultimately reducing the real-impact of interbank liquidity on the yield curve. Despite remarkable demand noted at the NTB auction, fixed income yields traded with northbound sentiments. The Naira strengthened with NAFEM closing at $/₦789.94. Nigeria stood at the crossroads of change in the week, driven by ambition and innovation.
A Vision for Nigeria’s Future
Distinguished guests at the Nigerian Economic Summit, including the Minister of Finance and the Coordinating Master of the Economy, Mr. Wale Edun, and the CBN Governor, Dr. Yemi Cardoso, gathered to discuss pivotal economic strategies. Most notably, the President of the Federal Republic of Nigeria delivered a visionary address, setting forth an ambitious goal: to transform Nigeria into a $1 trillion economy by the year 2026. Observers viewed the summit as a platform where innovative ideas and strategic plans converged, thereby promising a vibrant future for the nation’s economic landscape.
As the NGX All Share index gained 259 points within the week, there was a significant development for fixed income markets as a Committee of Governors meeting sought to eliminate the Standing Deposit Facility, (SDF) limit on placements. The removal of the limit marks a progressive step, opening new avenues for financial stability and innovation in Nigeria. The SDF is window through which deposit money banks place excess cash with the CBN at a pre-established interest rate (currently pegged to the MPR – MPR minus 3%). Prior to now, each bank could only enjoy interest on up to ₦2bn, now they can earn on their total placement volume.
The implication of this strategic move by the CBN is two-fold. First, it will lead to an automatic increase in interest rates to better reflect the MPR. And secondly, it will negate the impact of short-term liquidity on investment decisions and speculative tendencies. Overall, in the views of many stakeholders, it makes for more effective monetary policy and financial stability. For the first time in a long while, the SDF rate may serve as an effective floor for interest rates in Nigeria.
The week under review witnessed an upward trend in discount stop rates at the NTB auction across all tenors (91 days from 3.67% to 5.99%; 182 days from 5.11% to 9.00% and 364 days from 9.25% to 13.00%). As usual, the 364-day tenor was the most sought after with bids outweighing the amount offered by 532%. The T-bill market was largely bearish throughout the week. In tandem with bearish sentiments arising from the monetary policy rumours across the market, bond yields inched up tremendously. The benchmark 30-year bond which had printed 16.60% at an auction earlier in the month traded as high as 17.05% as panic sellers rushed to exit positions following the paradigm shift. Although there appeared to be some respite at the end of the week as yields dropped marginally, the entire market is certain that these are very unusual and unprecedented times and anything is possible.
Market Highlights: Vol 68.
- Naira appreciates against dollar for first time in three weeks.
- FMDQ effects name change renames ‘NSOFF’ product to ‘Cleared USD/NGN NDFs.
- FG’s effort to increase revenue could reduce debt service by 20% — DMO.
- MSCI to Reclassify the MSCI Nigeria Indexes from Frontier Markets to Standalone Markets Status.
Local News: Vol 68.
- FG moves to securitise NLNG dividends for $7bn.
- Tinubu Administration Targets ₦30.6 Trillion Fiscal Deficit in Three Years.
- FG Approves $3.45 Billion World Bank Loan to Boost Power, Other Sectors.
- UK Court Quashes $11 Billion P&ID Award Against Nigeria.
- FG may impose an excise tax on parallel market transactions.
Global News: Vol 68.
- Gaza invasion begins as risk of wider war spreads.
- Israel-Hamas War’s Impact on Economy Serious — World Bank Chief.
- Global shares mixed as U.S. tech stocks gain but inflation lingers
- Rugby win rallies South Africans struggling with multiple crises.
Discourse: Vol 68.
- How long will it take Nigeria to clear its FX backlog?
- At what point will FPIs dive into the Nigerian markets?
- Crypto adoption and regulation will reduce pressure on the greenback and expand the tax net for Nigeria. True or False?
Outlook
Exchange rates to stabilise as the FG restores confidence and strives to clear the backlog.
Interest rates likely to inch up further as liquidity loses factor status as an investment consideration.
Nigeria’s refining capacity expected to be boosted in the near term.