Investors eye outcome of Nigeria’s MPC meeting

The Monetary Policy Committee (MPC) in Nigeria has commenced its first meeting under the leadership of Governor Olayemi Cardoso of the Central Bank of Nigeria. The country is facing challenges such as rising bond and treasury bill rates, raising concerns about the possible policy direction that will be taken by the committee. Egie Akpata, the Chairman of Skymark Partners, recently joined CNBC Africa for a discussion on the current economic situation and the expectations from the MPC meeting. Akpata emphasized the importance of understanding the implications of the revised regulatory guidelines for Bureau de Change operators (BDCs) issued by the Central Bank of Nigeria. Although the new regulations propose a significant increase in the capital requirement for BDCs, the key question remains how much foreign exchange the central bank will allocate to these operators. The impact of the guidelines will ultimately depend on the actual supply of forex to the market. Moving on to the MPC meeting, Akpata acknowledged that the recent surge in bond yields has already made a substantial impact on the market. However, a significant adjustment in the benchmark rate by the MPC could signal a tightening stance, leading to higher interest rates on bank loans. This shift could have far-reaching consequences for borrowers and economic activities in the country. The rapid issuance of FGN bonds and treasuries at a record pace of almost $2 trillion per month raised concerns about the sustainability of such volumes. Akpata noted the challenges faced by the government and the central bank in maintaining this level of issuance due to limited liquidity in the financial system. The growing deficit spending may necessitate a reevaluation of the current approach to financing government obligations. Discussing the potential for Nigeria to tap into the Euro bond market, Akpata advised caution in timing the issuance. While other African countries have successfully issued Euro bonds, the prevailing market conditions and the outlook for interest rates could influence the pricing of Nigeria's bonds. Waiting for a more favorable interest rate environment before approaching the market may lead to better outcomes for the country. As the U.S. Federal Reserve hesitates to cut interest rates, the corporate bond market in Nigeria faces challenges in competing with government securities. The high yields on FGN bonds and treasury bills make it unfeasible for corporations to issue bonds at comparable rates. However, there may be opportunities in the commercial paper market, where corporates could find lower borrowing costs compared to bank loans. In anticipation of the MPC decision, speculations ranged from a 300 to 550 basis point increase in the benchmark rate. Akpata projected a more moderate 225 basis point raise, bringing the rate to 21 percent from the current 18.75 percent. The outcome of the MPC meeting is eagerly awaited as it is expected to provide clarity on the central bank's monetary policy direction and its implications for the broader economy. In conclusion, the economic landscape in Nigeria is undergoing significant changes, influenced by both domestic and global factors. The decisions taken by the MPC will play a crucial role in shaping the country's economic trajectory in the coming months. Investors and analysts are closely monitoring developments to assess the implications for financial markets and economic activities in Nigeria.