Economy needs to grow 7-10% for Nigerians to benefit -Dr. Chizea

Financial experts said stock market investment will maintain its uptrend until the end of the year despite the Monetary Policy Committee (MPC) decision at its last meeting in November 2021 to maintain all economic rates. . The decision to hold rates at this point has been described as appropriate as the economy is seen as supporting growth. Bamidele Famoofo reports.

So far, investors in the national stock market have enjoyed a good return on their investment, as trading on the trading floor of the Nigerian Exchange Limited (NGX) has shown that the market has generated a return of 7.4% since the beginning of the year against 0.1% recorded the previous time MPC. gathered in September. Experts who analyzed the performance of the market noted that investments turned bullish in the third quarter of the year due to encouraging financial results provided by listed companies.

A review of third-quarter market performance by Cordros’ research team suggested that yields rose on sentiment over the Central Bank’s approval of telecom giants MTNN and AIRTEL AFRICA to exploit a payment services bank (PSB) in Nigeria. According to Cordros Research stock analysts, “the outcome of the MPC meeting has already been assessed; therefore, we expect a neutral reaction from market participants. Overall, we see the opportunity for the market to maintain positive performance in Q4-21. Cordros’ research had based its robust market outlook on the assumption that investors would position themselves in dividend-paying stocks ahead of dividend declarations for the year 2021, which will take place in the first quarter of 2022.

Analysts also said that there is a prospect of increased foreign portfolio investor (REIT) activity supported by improving liquidity conditions at IEW. On the other hand, investing in the fixed income (FI) market is unlikely to experience any significant deviations from the current dynamics, as the monetary policy rate (MPR) becomes increasingly plus a signaling tool for market rates.

“We believe that medium-term expectations of rising interest rates will continue to fuel aversion to long-term instruments. As a result, we believe bond investors are likely to maintain the strategy of playing short to the belly of the yield curve. With attractive yields on term deposits and upside risks to inflation looming, analysts expect investors to resist any attempt by the Debt Management Office (DMO) to lower rates at bond auctions to improve inflation-adjusted yields. Meanwhile, the DMO’s deliberate efforts to reduce borrowing costs for the government will keep the yield curve below 14.0% levels. Financial Derivatives Company Limited Managing Director Bismarck Rewane, in a swift reaction to the MPC meeting, called the move to maintain rates prudent and wise.

The Economist noted that over the past four years, the MPC has maintained the status quo 89.29% of the time. “Even though the market anticipated this outcome, this time more than ever, the decision was seen as a prudent and wise move,” he said. “Policymakers have been caught in a trilemma of macroeconomic choices at a time when Nigeria does not have the luxury of time. With the 2023 general election just 400 days away and in the words of Maya Angelou, Nigerians “hope for the best, prepare for the worst and are not surprised by anything in between,” added Rewane. BIC Consulting Limited Managing Director / CEO Dr Boniface Chizea, also reacting to the MPC’s blocking decision, wrote: “So the logical question to ask at this point is why the rates were withheld. The straightforward answer is that you don’t fix it if it hasn’t been broken.

All of the key clues in the economy so far are all heading in the right direction although relief is yet to be felt at the individual level. Responding to criticism from ordinary Nigerians that these growth rates have not been felt at the individual level, he said: “The population growth rate in Nigeria is around 3% per year and that the The economy is expected to grow by an average of 7-10% for individuals to begin to feel its impact.

But what is reassuring is that the economy is growing even though we all know it could grow faster for the expected results to be felt. Dr Chizea, however, called on managers in the economy to act quickly to reduce the negative effect of the widening exchange rate differential on the economy. “My view is that the sooner we can reduce the hold of the exchange rate on the economy, the better for all parties involved. The decision to maintain was expected and the decision to maintain was made and therefore everyone should be at peace, ”he said.

MPC

The MPC did not disappoint most analysts’ predictions that it will leave monetary policy parameters unchanged at its November meeting, which is the last in 2021. The MPC, according to the governor of the Central Bank of Nigeria , Godwin Emefiele, voted to keep the MPR. to 11.5% alongside other key parameters of monetary policy. As at the last meeting in September, a unanimous decision was taken among the members of the Committee. Likewise, the Committee also voted to maintain the Cash Reserve Requirement (CRR) at 27.5%, the liquidity ratio at 30.0% and the asymmetric corridor around the MPR at + 100bps / -700bps.

Arriving at maintaining the status quo, Emefiele noted that the committee needed to ease its accommodative stance, maintain the status quo or tighten to bring inflation closer to the bank’s medium-term target of 6.0% to 9. , 0%. On the tightening, the Committee said that while it would help to remove inflationary pressures, it would restrict the flow of credit and slow down output growth.

The Committee also believed that easing would further widen negative real yields and amplify price distortions in the financial market. As a result, the Committee felt that maintaining the status quo would allow the gains from its accommodative monetary policy to continue to permeate the economy.

That said, the Committee reiterated the need for the umbrella bank to maintain its direct intervention in growth sectors in order to strengthen the recovery process. The Committee welcomed the continued resumption of output growth after the growth recorded in Q3-21. Accordingly, the Committee welcomed the continued support of the fiscal and monetary authorities to support the recovery process despite the persisting security challenges against a backdrop of inadequate infrastructure. In addition, the Committee adopted a cautious tone on the growth outlook given expectations of tightening global financial conditions amid a persistent slowdown in the domestic labor market. Therefore, he urged monetary and fiscal authorities to maintain their support for the economy while the pandemic is not yet over.

As at previous meetings, the Committee urged the federal government to redouble its efforts to address security challenges so that this does not hamper corporate sentiment and derail the fragile recovery. Nevertheless, the Committee noted that with the sustained interventions of the CBN, economic activities would normalize in the short to medium term, leading to improved output growth and lower inflationary pressures.

Overall, the CBN forecasts economic growth of 3.10% year-on-year in fiscal 2021, compared to 2.94% year-on-year forecast by Cordros. The Committee underlined the continued moderation of headline inflation in line with the slower pace of increases in food prices and the non-food basket. However, the Committee recognized that the inflation rate remains above the CBN target range of 6.0% to 9.0% and the TPM of 11.5%.

Accordingly, the Committee indicated that sustained intervention by the CBN would reduce the output gap and reduce inflationary pressures. Overall, the Committee expects headline inflation to continue on its downward path as the harvest season sets in and the tax authorities improve the country’s security situation in order to alleviate bottlenecks. bottlenecks that hamper the food supply. Barring a significant price shock, experts expect the base effect from the previous year to continue to moderate inflationary pressures over the remainder of the year, as an average inflation rate 16.90% year-on-year is forecast for fiscal 2021 compared to 13.21% year-on-year. in 2020 FY.





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