MPC decision’ll keep equities market down –WSTC

Following the decision of the Monetary Policy Committee of the Central Bank of Nigeria to maintain its tight monetary stance, the performance of the country’s equities market is expected to remain subdued in the short-term, WSTC Financial Services Limited has said.

The MPC on Friday at the end of its two-day meeting decided to maintain the status quo by holding on to its restrictive monetary stance.

The committee decided by a majority vote to retain the Monetary Policy Rate at 13 per cent, with an interest rate corridor of +/-200 basis points.

The harmonised Cash Reserve Ratio on public sector and private sector deposits and liquidity ratio were also retained at 31 per cent and 30 per cent, respectively.

Analysts at WSTC, Olutola Oni and Motunrayo Giwa, said, “We expect the performance of the equities market to remain subdued in the short term as a result of investors’ apathy, which is as a result of the impact of elevated uncertainty in the administration of the economy, faltering macroeconomic fundamentals and tight monetary environment on corporate performance.

“We also believe that the presence of foreign exchange uncertainties and compelling risk-adjusted yields in the fixed income market remain key downside risks to equities.”

They added that the decision of the MPC to maintain status quo in spite of growing inflationary pressures and increasing volatility in the parallel segment of the foreign exchange market underscored the fact that the central bank was getting to the limits of monetary policy options it can deploy.

“We believe the CBN may remain incapacitated in this way until there are clear policy directions from the fiscal side of economic management, particularly on issues bordering on fuel subsidy and economic administration.

“Given this, and the retention of status quo by the MPC, we do not expect any significant change in the course of the financial markets. We generally expect the bearish trend in the financial markets to remain within the short-term outlook.”

According to the analysts, the CBN’s tight policy stance and aggressive government borrowing on account of low government earnings will keep yields on fixed income securities attractive.

“We strongly believe that the decision of the central bank to hold on to its tight monetary stance in the face of waning economic growth is borne out of the need to keep the naira ‘afloat’ without necessarily devaluing the naira.

“However, given the stern realities presented by softening crude oil prices and increasing volatility in the parallel segment of the forex market – a condition that has intensified speculative activities and round-tripping, we retain our position on the imminence of currency devaluation.”

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