Nigeria’s inflation rate in August 2024 was reportedly at 32.15%, a rate lower than the figure in July 2024, which was 33.40%. We have observed the effect of the reduced inflation rate amongst some traders who appear excited about the possibility of a rate cut at the forthcoming MPC meeting. Last week, several central banks around the world convened to discuss strategies for the future of their economies. Notably, the US Federal Reserve reduced interest rates by 50 basis points for the first time since 2020, bringing the range down to 4.75%-5% from 5.5% in August 2024. Similarly, Hong Kong cut rates by 50 basis points, resulting in a new rate of 5.25%. The South African Reserve Bank lowered its rates by 25 basis points to 8%. In addition, central banks in England, Norway, and Turkey maintained their rates at 5%, 4.5%, and 50%, respectively. In contrast, the Central Bank of Brazil (Banco Central Do Brasil) raised rates by 25 basis points in response to inflation concerns.
In the second quarter of the year, Ghana’s economy experienced its fastest growth since 2019, exceeding the predictions of analysts and economists. Government Statistician Kobina Annim reported that the country’s Gross Domestic Product (GDP) grew by 6.9% in Q2 2024, up from 4.7% in the previous quarter.
At the NAFEM Window, the Naira traded as high as N1,672.00 on Friday, and as low as N1,530.00 on Wednesday. The market closed the week at N1,541.42.
At the FGN Bond auction set to be held on Monday, the Debt Management Office (DMO) is looking to raise the total sum of N150 billion – going by the released amount on offer. A breakdown shows that there is a target of N70 billion for the April 2029 (5-year bond), N50 billion for the February 2031 (7-year bond), and N30 billion for the May 2033 (9-year bond). Some market participants are of the opinion, however, that the DMO may sell more than what is on offer for the May 2033 bond.
Liquidity was short throughout the week with an average deficit of over N330 billion. However, according to data obtained from the CBN, there were Primary Market Repayments of over N400 billion. There was some bearish sentiment across the yield curve at the close of the week following a Bloomberg report on Friday titled ‘Nigeria Delays Coupon Payment on Savings Bond for a Second Time.’
The Federal Account Allocation Committee (FAAC) saw a decline of 11.4% from the N1.358 trillion disbursed in August to the N1.203 trillion disbursed in September.
On Thursday, Mr Wale Edun, the Minister of Finance and Coordinating Minister of the Economy, announced that the country has gained $2.35 billion in net inflows into the Central Bank’s foreign reserves in 7 months. As of Wednesday, 18th of September 2024, the reserves stood at a gross of over $37 billion.
During his presentation at the Access Corporate Forum 2024, he alluded that the rise in foreign reserves had played a momentous role in steadying the Naira in the foreign exchange market. Moving on, he noted that the Federal Government is making efforts to boost the production of oil, with an outlook of about 2 million barrels per day before the end of the year 2024.
Recently, the Central Bank of Nigeria (CBN) released the Monetary, Credit, Foreign Trade, and Exchange Policy Guidelines for Fiscal Years 2024-2025. The CBN has confirmed that it will maintain the cybercrime levy at 0.005% on all electronic transactions as part of its new guidelines for the 2024-2025 fiscal year. Before now, this levy generated considerable reactions among Nigerians when it was initially announced in May 2024. Mandated by the Cybercrime (Prohibition, Prevention, etc.) Act, 2015, the levy is designed to enhance the country’s cybersecurity infrastructure.
However, there has been a notable reduction from the previously announced 0.5% in May 2024. The CBN reiterated its commitment to this levy, instructing banks and financial institutions to deduct it from all electronic transactions. The funds raised from this levy will be allocated to a cybersecurity fund aimed at strengthening the protection of Nigeria’s banking system against the rising threat of cyberattacks.
As the market waits for the MPC decision on Tuesday, we are of the opinion that the MPC will hold rates with a dovish bias. While inflation numbers have continued to come down, we note that numbers do not include the effect of the latest increase in petrol prices. September inflation figures would give directions on what to expect at the last meeting of the year in November. In the short term, we think rates might be South-bound as we anticipate the DMO will borrow more USD than Naira going forward. It follows logically that borrowing in Dollars will considerably boost the CBN’s war chest and potentially lead to local currency revaluation.
With the CBN’s resolute determination that its Ways and Means Advances to the Federal Government should remain capped at 5% (the Cap) for the fiscal years 2024-2025, there are several implications for the economy, the fixed income market, and the country as a whole. By limiting these advances, analysts are of the opinion that the CBN aims to promote fiscal discipline, ensuring that the government does not rely excessively on borrowing to cover budgetary deficits. This could help stabilise public finances and prevent a buildup of unsustainable debt, fostering a more responsible approach to fiscal management.
The Cap is positioned to enhance investor confidence, as it signals a commitment to maintaining monetary stability and reducing the risk of inflation which could arise from unchecked government borrowing. A more stable fiscal environment could attract both domestic and foreign investment, positively impacting the fixed income market.
Overall, the decision reflects an effort to balance short-term financing needs with long-term economic stability which is crucial for promoting sustainable growth. By adhering to the Cap, the CBN is clearly working to reinforce the integrity of Nigeria’s financial system, ultimately benefiting the country’s economic outlook. However, it also means that the government will need to explore alternative revenue sources or tighten its budget to meet fiscal demands which may lead to short-term challenges in public spending and service delivery.
