It has been observed through a review of recent macroeconomic indicators and financial developments in Nigeria that market forces may soon drive down interest rates and yields on fixed income securities.
This was contained in a report by analysts at FSDH Merchant Bank. It says the yield on the 364-day Nigerian Treasury Bills (NTBs) has been on the increase since January 2016.
This, according to the report, has been attributed to increased risks in the Nigerian economy, some of which include rising inflation rate and the weak exchange rate occasioned by the drop in crude oil price and production.
However, recent developments show that confidence is returning to the Nigerian economy and the risks are waning. These developments may pave way for a drop in interest rate and yield in the short-term.
A review of the latest Purchasing Managers’ Index (PMI) that the Central Bank of Nigeria (CBN) published for the month of May 2017 suggests that substantial investment is taking place in the Nigerian economy.
The PMI report shows that the Composite Manufacturing Index (CMI) expanded for the second consecutive month in the year 2017 and attained the highest level since March 2015. The CMI increased to 52.5 points in May 2017 from 51.1 points in April 2017.
The Composite Non-Manufacturing Index (CNMI) also expanded to 52.7 points in May 2017 from 49.5 points in April 2017. The month of May marks the first time the CMI has exceeded the 50 points baseline since January 2016.
“The PMI report also shows that the production level in the Manufacturing sector expanded for the third consecutive month, increasing to 58.7 points in May 2017 from 58.5 points in April 2017.
A PMI below 50 points level suggests a decline in business activity while a PMI higher than 50 points level suggests an expansion. When the PMI is at the 50 point level, it means that the degree of business activity in the economy is unchanged”, the report said.
Significantly, the first quarter 2017 foreign trade data from the National Bureau of Statistics (NBS) on the Nigerian economy show a growth compared with the corresponding period in 2016.
Total trade increased to N5.29 trillion in Q1, 2017 from N3.13 trillion in Q1, 2016, representing growth of 69.14%.
Exports contributed 56.8% to total trade and increased to N3.01trillion in Q1, 2017 from N1.44trillion recorded in Q1, 2016. Imports grew to N2.29trillion in Q1, 2017 from N1.69trillion in Q1, 2016 representing growth of 35.20%.
Consequently, Nigeria recorded a favourable trade balance of N719.38billion in Q1, 2017 from a trade deficit of N253.33billion in Q1, 2016. Both Crude Oil exports and Non-Crude Oil exports recorded strong growth in Q1, 2017 compared with Q1, 2016. Crude Oil exports increased to N2.38trillion in Q1, 2017 from N1.13trillion in Q1, 2016 representing growth of 110.7%.
Non-crude oil exports more than doubled to N629.19billion in Q1, 2017 from N309.75billion in Q1, 2016.
The positive growth in the foreign trade statistics, according to analysts at FSDH, resulted in additional foreign exchange inflows for the country, which bolstered the CBN’s ability to support the current stability in the foreign exchange market. We expect foreign trade to remain favourable for Nigeria for the rest of 2017.
This should support the value of the Naira and reduce the need to maintain high-interest rate to defend the exchange rate.
Source : Independent
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