MPR hike to boost returns on money market investment

Optimism heightened yesterday on returns on investment in money market instruments following the hike in Monetary Policy Rate (MPR) to 14 percent from 12 percent by the Central Bank of Nigeria (CBN). Analysts were unanimous in their agreement that the new development would be of immense benefit to the economy which already has been declared to be in recession.

In his emailed response, Bolade Agboola, executive director Cashcraft Asset Management, said the hike in MPR from 12 percent to 14 percent  is a policy response to spiraling inflationary rate  currently 16.5 percent the highest in the last two decades .It is a deliberate monetary policy measure to foster convergence of  the parallel market and the official market. The objective is to  bring down demand for foreign exchange as cost of funds rises. The hike might be a  strategy to  assure  patronage of government debt instruments for funding the budget deficit which is critical for spending to exit recession and grow the economy again .Meanwhile the tepidity of the stock market may be  further elongated as the hike in MPR boast returns on alternate investments in money market  instruments by two  hundred basis point .Only a promising  half year  corporate results can change the  current trend in the stock market . 

According to Omotola Abimbola, head, investment research, Afrinvest Securities limited, the MPC’s decision comes as no surprise to us. We believe expectations have been carefully guided towards a rate hike via aggressive liquidity tightening post-implementation of the liberalized FX market. This only goes to confirm the commitment of the CBN to a more conventional management of monetary policy, focusing on its price and exchange rate stability objective.

He said the economy will benefit from a confidence-lift in the CBN and the return to conventional management will buoy foreign investors’ interest in Nigerian assets which in the short term could spur foreign capital inflows into the FX market and reduce the burden of funding our twin deficit: fiscal and current account. Would definitely buy more time for the fiscal and monetary team to concentrate on longer term policy reforms to make the economy more competitive, Abimbola said in an emailed response to BusinessDay.

Addressing journalists after the meeting, Emefiele said, the aim of the MPC’s decision is to deepen the FX supply and make it available to users particularly to manufactures who require raw material to boost manufacturing and industrial capacity.

“We are also hopping that when this is achieved, naturally prices will be affected downward. We have a situation where FX is made available to those who want to import agricultural in puts, insecticides or agricultural plants, to boost agricultural productivity and moderate effect on prices downward. So what this does is to create activity that will boost not just agricultural activity but will indirectly push growth forward. It did not mean that we did not have growth at the back of our mind. We want to look at price stability aimed towards curtailing inflation and at the same time ultimately see how we can achieve growth”.   

Emefiele said strategic health of the bank is strong. Naturally when economist face global shock like the entire world economy is facing today, financial institutions will have their own share of that squash. No doubt there has been weakening in capital adequacy ratio, liquidity and NPL but not to the extent that it create any panic or worry to anybody, or any stakeholder in the Nigerian banking industry. I cease this opportunity to say that the strategic health of the Nigerian banking or financial institution remains strong at this time. There is no need for anybody to begin to panic or worry that any bank is in distress.

“We took certain actions about the activities or to express our unhappiness over the misdemeanor in the activities of certain board and management of a bank and doing that does not mean that bank is in distress. 

‘What the CBN will need to do is to monitor the Nigerian banking system, monitor the activities of director, shareholders, members of management of the Nigerian banks and when we find that we are not happy with the dealings or activities of some shareholders, or that directors have undermine their positions to the detriment of that bank, we will take action by removing that management, director, or shareholder and to see to it that he does not by his activities precipitate a distress in that bank”, Emefiele said.   

HOPE MOSES-ASHIKE