Looking at the macroeconomic developments in the economy, there are compelling reasons to believe that the Monetary Policy Committee, MPC, will vote to increase the MPR to 14 per cent, with symmetric corridor of +/-2 per cent, analysts have said.
The MPC of the Central Bank of Nigeria, CBN, will meet between Monday, May 23 and Tuesday, May 24, 2016.
“We also expect the MPC to adjust the exchange rate to $1/N275, with a symmetric corridor of +/-5 per cent and equally re-open the inter-bank foreign exchange market,” analysts at FSDH Merchant Bank Limited have said.
According to the report, the external reserves have not benefited from the increase in oil price because of the strong demand for foreign exchange and the drop in crude oil production.
“The 30-day moving average external reserves declined by 4.38 per cent from $27.88billion at the last MPC meeting to $26.66billion as at May 17, 2016. We expect a change in the foreign exchange rate policy of the CBN to boost the external reserves through inflows from foreign investors,” the analysts added.
They stated that value of the naira remains weak because of the excess demand over supply and following the announcement of a new pump price, the value of the naira depreciated further at the parallel market.
The parallel market rate depreciated by 9.58 per cent to $1/N355 as at May 16, 2016 from $/N321 before the announcement of the increase in fuel price and the CBN official market rate remains at $1/N197.
“We believe the official exchange rate of $1/N197 is almost redundant at the moment as few or no transaction is carried out at the official exchange rate. An adjustment in the exchange rate is imperative to align the rate with economic realities.
The average yields on the 91-day, 182-day and 364-day Nigerian Government Treasury Bills (NTBs) increased to 7.12 per cent, 9.25 per cent and 10.95 per cent in April 2016, compared with 5.73 per cent, 8.27 per cent and 10.17 per cent respectively in March 2016.
The yields on the 91-day, 182-day and 364-day NTBs stood at 8.27 per cent, 9.64 per cent and 14.25 per cent respectively as at May 18, 2016.
Also, the yield on the 16.39 per cent FGN Bond January 2022 also increased to 11.79 per cent in April 2016 from 11.47 per cent in March 2016, while it stood at 14.45 per cent as at May 16, 2016.
“The spiralling inflation rate in three consecutive months has worsened the real yields on fixed income securities. We note that the yield on the 364-day NTB is higher than the inflation rate for the first time since November 2015.
“We expect an increase in the MPR with the aim of reducing the inflationary pressure and to attract investments into the fixed income securities market,” the report stated.