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Expert criticises sharp rise in Nigeria’s Monetary Policy Rate

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In a recent development that has stirred economic debate, the Central Bank of Nigeria’s decision to hike the Monetary Policy Rate (MPR) by a substantial 400 basis points has been labeled as “overkill” by Prof. Uche Uwaleke, a distinguished professor of Capital Market at Nasarawa State University.

During an interview with journalists on Wednesday, Prof. Uwaleke expressed his concerns over the aggressive adjustment which saw the MPR soar from 18.75 percent to an unprecedented 22.75 percent following the Monetary Policy Committee (MPC) meeting on Tuesday.

The MPC’s bold move also included a shift in the asymmetric corridor to +100 – 700 basis points surrounding the MPR, a significant leap from the previous +100 -300 basis points. Furthermore, the Cash Reserve Ratio (CRR) experienced a hike from 32.5 percent to 45 percent, although the Liquidity Ratio was maintained at 30 percent.

Prof. Uwaleke, an expert in the field, cautioned that such a drastic increase in the MPR could have far-reaching implications, suggesting that the action taken by the MPC might be excessively stringent.

This sentiment reflects the broader anxiety among market watchers and economists who are keenly observing the potential impacts of this policy shift on the Nigerian economy.

“Why not by more than 200 basis points since they have another opportunity to meet next month and review impact?

“They didn’t stop at MPR, they also jerked up the Cash Reserve Ratio (CRR) to 45 per cent, which at the previous level of 32.5 per cent is among the highest in Sub Saharan Africa.

“The CBN Governor has assured that policies of the bank will be evidence-based. Which empirical results support this aggressive move,’’ Uwaleke queried.

He said that the MPC decisions would affect the real sector of the economy.

According to him, the implication is the decisions that for every deposit in the bank, CRR takes 45 per cent, while Liquidity ratio takes 30 per cent.

“So, it is only 25 percent of the deposit that banks can lend

“This has negative implications for access to credit, cost of capital for firms, cost of debt service by the government and asset quality of banks.

“Expect banks to quickly reprise their loans with negative consequences for non-performing loans and financial soundness indicators.

“By this overkill on the economy in a bid to crash elevated inflation, which by the way has numerous non-monetary factors driving it, output is bound to shrink.

“So, expect lower Gross Domestic Product (GDP) numbers, especially from Agric and Industry sectors as well as a surge in unemployment levels.

“This is not a welcome development,” he said.

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Money market

Naira makes huge recovery, gains 7.2% against dollar

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The Naira on Friday experienced huge appreciation at the official market, trading at N1,142.38 to the dollar.

Data from the official trading platform of the FMDQ Exchange, a platform that oversees the Nigerian Autonomous Foreign Exchange Market (NAFEM), revealed that the Naira gained N88.23.

This represents a 7.16 per cent gain when compared to the previous trading date on Monday, April 8, exchanging at N1,230.61 to a dollar before the Sallah holiday.

The total daily turnover increased to $281.34 million on Friday up from $125.55 million recorded on Monday.

Meanwhile, at the Investor’s and Exporter’s (I&E) window, the Naira traded between N1,265 and N1,100 against the dollar.

Economic experts have continued to praise both fiscal and monetary policies of President Bola Tinubu’s administration responsible for the steady Naira appreciation.

The CBN, during its policy meetings held in February and March, implemented a total of 600 basis points in interest rate increases.

This helped tackle dollar scarcity, reduced volatility, and decreased reliance on parallel markets.

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Money market

DMO to raise N450bn in April bond auction

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The Debt Management Office (DMO) is seeking to raise N450 billion in its April bond auction billed to take place on April 15.

This is in line with the agency’s plan to raise up to N1.8 trillion through FGN bonds in the second quarter (Q2) of 2024.

The DMO is offering N150 billion for the new FGN APR 2029 five-year bond. It is offering N150 billion for the reopened FFBN FEB 2031 17-year bond and N150 billion for the FGN FEB 2034 10-year bond.

The auction will take place on April 15 and the settlement date is April 17, 2024.

FGN bonds are auctioned every month through the DMO, with the interest paid semi-annually. They are subject to a minimum subscription of N50,000,001 and in multiples of N1,000 thereafter.

FGN bonds are recognised as investment instruments for trustees under the Trustee Investment Act. They receive tax exemption benefits for pension funds because they’re considered government securities, as per the guidelines in the Company Income Tax Act (CITA) and the Personal Income Tax Act (PITA).

In Q1 2024, the DMO raised about N2.39 trillion through FGN bonds, with the largest issuance occurring in February.

In Q1 2024, the DMO raised about N2.39 trillion through FGN bonds, with the largest issuance occurring in February.

The DMO issued N418.2 billion of FGN bond in January, N1.49 trillion worth of FGN bonds in February 2024, with interest rates hitting 19 percent for the 10-year bonds. Then in March 2024, the DMO issued N475.7 billion at bumper interest rates, with rate hitting 20.45 percent on the 10-year bond.

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ABCON backs CBN’s prohibition of non export domiciliary account collateral for naira loans

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The Central Bank of Nigeria (CBN’s) directive stopping the use of Non Export Domiciliary Account Collateral for naira loans will boost dollar liquidity, support reserves accretion and strengthen the financial services sector, President, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji (Dr.) Aminu Gwadabe has said.

According to the CBN directive to banks, the use of foreign currency-denominated collaterals for Naira loans is now prohibited, except in cases where the collateral is in the form of Eurobonds issued by the Federal Government of Nigeria or guarantees provided by foreign banks, including Standby Letters of Credit.

In a statement on the apex bank policy and impact on the forex market, Gwadabe described the move as a welcome development, expected to put the excesses of big businesses and manufacturers putting unnecessary pressure on the forex market  in check.

He said, “ABCON members are bewildered that some companies and manufacturers with billions of dollar balances in their non-oil export domiciliary accounts  use it as collateral for naira loans and still source forex in the official window thereby depleting what is available for other operators.

“The stoppage of this unprofitable practice will not only add to the dollar liquidity in the market but also help in the accretion of foreign reserves buffers,” he added.

Gwadabe advised the apex bank to review foreign currency holding guidelines for non-oil export domiciliary accounts proceeds and entrench maximum of 48 hours with a minimum balance of $5k for individuals and $50 k for companies in holding positions as practiced in South Africa.

ABCON chief further advised the CBN not to approve forex requests by manufacturers and other business applicants with billions of dollars holdings in Non export oil proceeds domiciliary accounts at both the NAFEM and NAFEX window.

ABCON boss explained that unfortunately, the BDCs are most times seen as crude but remain an effective market control mechanism with the potent transmission mechanism tool in achieving the CBN’s mandate of price stability and liquidity in the markets.

“We therefore urge the CBN to continue to drive and expand its operations to ensure that the best results now achieved in the last 15 years is maintained and  also ensure exchange rate convergence, market calmness and confidence of the public and foreign investors,” he said.

ABCON leadership, he added, has also called for and advocated for the separation of ownership and operational structures of FMDQ Exchange. The move, he said would ensure more transparency and effectiveness in market operations and price control mechanisms.

Furthermore, ABCON boss urged the CBN to allow legislative decisions on the planned reforms in the BDCs sub-sector to boost foreign investors’ confidence and guarantees in the sectoral transformation.

“We also want to pledge our continuing support to CBN’s proactive and effective policies and meant to address volatility and headwinds in the forex market. As a self regulatory body, ABCON is currently engaging all stakeholders and players in the retail  end market to deepen, liberalise, democratise and centralise the retail end segments of the market for price discovery, market efficiency, transparency, accretion of buffers and healthy balance of payments,” Gwadabe said.

“We applaud the CBN management for the reconsideration and reinstatement of the BDC sub-sector as third leg of the forex market to put hoarding and speculation under check and we have seen faster results than expected,” he stated.

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