Fixed Income Q4 2016 - Stumbling forward for another quarter

Proshare

Monday, October 10, 2016 3:12pm / FBNQuest Research

 

Limits to effective monetary policy
The response of the MPC to an economy in recession and a surge in inflation has been to maintain an on-hold stance, and absolve itself of blame.

The committee appears to have abandoned its use of monetary policy to attract offshore investors, and is looking for fiscal support and structural reforms to boost the economy.

Rate cuts ahead to track inflation
We expect the committee to put on its inflation hat and ease rates slowly as the headline measure slows on positive base effects. We see the policy rate at 11.00% at end-2017.

Drifting exchange-rate regime
As long as the CBN remains the largest supplier of fx, we will have a drifting (and not a floating) exchange-rate regime.

There are several putative paths to the game changer that is a substantial autonomous inflow to create a fully functioning market (asset sales, oil price rebound, FDI, loans from the IMF etc): in our view, they are not large enough, unlikely in the forecast horizon or politically unacceptable.

We do not see the CBN taking the risk of meeting all fx demand and letting the rate “go” in the hope that the said inflow materialises before its reserves are exhausted.

More fiscal expansion, more borrowing
The FGN proposes another expansionary budget for next year, and projects a sizeable rise in its debt burden of N2.5trn over 18 months.

In our view, if revenue collection underperforms (as it will this year), the FGN will rein back its capital spending plans rather than let the budget deficit soar.

Flattish bond yields on institutional demand
Fiscal expansion, strong debt issuance and rising inflation would point to a marked pick-up in FGN bond yields.

The steady demand from the PFAs and their preference for the bonds suggest otherwise. We see FGN bond yields within a narrow range of 14.75% to 15.50% in the next quarter.



Download PDF Here


Related News

1.      
Access Bank Announces Exchange Offer and Minimum New Issue Yield

2.      An Assessment of the Exchange Rate Pass-Through in Angola and Nigeria

3.      MPC Neutral Stance May Be Accommodative

4.      CBN Communiqu' No. 109 of the MPC Meeting - Sep 19-20, 2016

5.      MPC Maintains Status Quo

6.      Monetary Policy Committee Decision Review - Access Bank Plc

7.      Temptation of the MPC to hike again

8.     Do Nothing - An Option: MPC Considerations and Policy Options

9.      Ahead of MPC Meeting - MPC in a Dilemma …Growth Vs Price Stability

10.  Personal Statements by Members at the 108 MPC Meeting of July 25 and 26 2016

11.   Bank Of England MPC Holds Bank Rate At 0.25%

12.  Bank Of England: Monetary Policy Committee Announcement Dates For 2017 And 2018

13.  Cordros shares more details about its Money Market Fund

14.  Cut in United Kingdom Base Rate…a Plus or Minus for Nigeria?

15.   Access to the CBN Discount Window on Auction Days

16.  FMDQ Admits 16.79bn UPDC PLC Commercial Paper to its Platform

17.   Monetary policy to appeal to old friends

18.  MPC Tightens to 14% P.A; Between a Rock and a Hard Place - FDC

19.  MPC Takes a Gamble, Hikes MPR - FDC

20. CBN Communiqué No. 108 of the MPC Meeting – July 25-26, 2016 

 

 

Related News
SCROLL TO TOP