Local Markets to Hold Steady as CBN Retains MPR at 13.50%

Tuesday, May 21, 2019   /  07:00PM  / Zedcrest Capital 

The Central Bank of Nigeria decided to leave all parameters including its monetary policy rate unchanged at its MPC meeting concluded today, sighting renewed inflationary pressures, concerns for FX stability and the need to monitor real sector developments since the latest cut in the MPR to 13.50%. The CBN however frowned on the ‘over-investment’ of banking sector deposits in risk free government securities which have consequently crowded out the much needed credit to the private sector, and stated its intentions to check the unlimited access to government securities by DMBs. 

Whilst the CBN has slowed down its spate of OMO issuances in recent sessions, we await more clarity on how it actually intends to implement its aforementioned policy stance towards the DMBs. The market is however expected to be relatively stable in the near term, given the hold in the MPR. 

Below are highlights from activities within the Fixed Income and FX market today.

Bonds

The FGN Bond market traded on a relatively mixed note, with slight profit taking observed on the mid to long end of the curve, ahead of the FGN bond auction scheduled for tomorrow, whilst yields on the shorter end of the curve compressed lower in tune with the still depressed level of rates in the T-bills market. Yields were consequently unchanged on average. 

The DMO will offer a total of N100bn of the 5, 10 and 30-yr bonds at the auction for tomorrow, and we expect rates to clear c.15 -20bps lower from their previous auction levels, with a moderate level of oversubscription expected mostly on the 10 and 30-yr maturities.

Source: Zedcrest Dealing Desk

Treasury Bills

The T-bills market remained slightly bullish, with yields lower by c.5bps on the back of some more demand on the mid to long end of the curve. The rate of decline in yields has however slowed from previous sessions, with rates finding support at c.11.50% on the mid to long end of the curve. 

Source: Zedcrest Dealing Desk

Money Market

Rates in the money market remained relatively stable, as system liquidity improved to c.N266bn opening the day. The OBB and OVN rates consequently ended the session at 4.57% and 5.29% respectively. 

We expect rates to remain stable at these levels tomorrow, as there are no significant outflows anticipated.

Source: FMDQ, Zedcrest Research 

FX Market

At the Interbank, the Naira/USD rate was unchanged at N306.90/$ at the spot market, while the SMIS rate increased slightly by 0.03% to N356.92/$. The NAFEX closing rate in the I&E window however declined by 0.08% to N360.42/$, as market turnover improved by 65% to $138m. At the parallel market, the cash and transfer rates remained unchanged at N359.00/$ and N363.50/$ respectively.

Source: CBN, FMDQ, REXEL BDC 

Eurobonds

The NGERIA Sovereigns improved slightly, with yields compressing by c.3bps on the day. We witnessed the most gains still on the shorter end of the curve.

In the NGERIA Corps, $200k of the DIAMBK 19s matured and were repaid to holders at par, while we saw slight interests on the ZENITH, UBANL and FIDBAN 22s.

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