- MPC to raise MPR further by 100bps to 27.25% – Analysts
Trading activities on the local bourse were mild as the bulls reversed Wednesday’s loss into the positive territory on Thursday, driven by investors’ demand for some of the small and midcap stocks.
The benchmark index rallied positively by 0.47 percent to close at 100,503.21 points, reflecting robust buying interest across various counters.
The market capitalisation of traded equities also increased by 0.46 percent to N56.91 trillion, providing equity investors with gains of N262.8 billion even as the exchange saw fewer gainers (24) compared to decliners (29), resulting in a year-to-date return of 34.41 percent.
Market breadth on Thursday was lackluster due to low-traded volumes.
The daily average volume decreased by 64.3 percent to 392.8 million units, while the total number of deals for the day advanced by 3.4 percent to 9,013.
Meanwhile, the traded value slumped by 17.3 percent to N8.33 billion.
GTCO emerged as the most traded security by volume with 39.75 million units worth N1.80 billion in a total of 663 deals while AIRTELAFR was the most traded security by value at N2.25 billion in just 34 trades.
Sectoral performance was in the mixed bag. The oil and gas, consumer goods and industrial goods sectors were the gainers for the day with 0.19 percent, 0.07 percent, and 0.01 percent respectively.
This comes as investors scrambled for AIRTELAFR, ETERNA, OANDO, NASCON, FLOURMILL, UNILEVER and CHAMPION. On the contrary, the news concerning the Federal Government’s plan to fund its 2024 supplementary budget from the 2023 windfalls reported by banks sparked negative sentiments as investors dumped stocks within the Insurance and Banking sectors, recording losses of 2.35 percent and 2.28 percent, respectively.
At the end of trading, the top gainers included UCAP (9.92%), OANDO (9.76%), AFRIPRUD (9.55%), LEARNAFRICA (9.38%), and ABCTRANS (9.09%).
On the other hand, the top decliners were LINKASSURE (10.00%), VERITASKAP (10.00%), VITAFOAM (9.67%), (5.63%), and UNITY BANK (5.49%).
At the money market, Overnight Nigerian Interbank Offered Rate (NIBOR) decreased by 4 basis points to 32.47 percent reflecting easing liquidity level in the financial system. Conversely, the 1-month, and 3-month NIBOR advanced while the 12-month NIBOR rates decreased to 27.68 percent. Meanwhile, Key money market rates such as the Open Repo Rate (OPR) and Overnight Lending Rate (OVN) also decreased, closing at 31.84 percent and 32.38 percent, respectively.
The Nigerian Interbank Treasury Bills True Yield rates closed in the mix, with increases seen across 1-month and 6 months tenors with investor sentiment turning positive, leading to rate increases.
The secondary market for Nigerian Treasury Bills was moderately active and bullish, resulting in a basis point drop in the average T-bills yield to 20.39 percent.
In the bond market, trading activity at the secondary FGN Bonds market was quiet, with yields on all maturities remaining unchanged.
However, the average secondary market yield closed negative at 19.37 percent compared to the previous close due to sell-off in the FEB-34 and JUN-33 bills.
In the sovereign Eurobonds market, waning sentiment was observed across various maturities, particularly impacting the NOV-27, SEP-28 and MAR-29 – dollar bonds, leading to a 6-basis points uptrend in the average yield to 9.97 percent.
The foreign exchange market saw pressure on the naira from rising demand, causing the local currency to weaken against the US dollar across market segments. In the official NAFEM market, the naira closed at N1, 566.82 per dollar, a 0.94 percent decline from the previous close. In the parallel market, the naira also depreciated by 2.75 percent, ending the day at an average of N1, 608 per dollar.
MPC to raise MPR further by 100bps to 27.25% – Analysts
Meanwhile, as the Monetary Policy Committee of the Central Bank of Nigeria meets next week, financial experts at Cordros Research have projected a further increase in lending rate to the tune of 100 basis points.
“We expect the MPC to maintain their tight monetary policy stance at next week’s meeting. This will be hinged on the goal to (1) ensure price stability, (2) reduce the negative real rate of return, (3) manage inflation expectations, and (4) stabilize the naira,” Cordros mentioned in a Pre-MPC analysis.
However, given the slower pace of the increase in the inflation rate and an anticipated disinflation trend for the remainder of the year, the analysts foresee a moderate increase than in previous meetings.
“Therefore, we anticipate the MPC will raise the MPR by 100 basis points to 27.25 percent while keeping other parameters unchanged,” the experts predicted.
The Monetary Policy Committee of the Central Bank of Nigeria is set to meet on July 22 and 23, 2024, for their fourth meeting of the year.
As expected, the MPC will assess recent developments in the global and domestic economies since the last policy meeting.
For the global economy, Cordros noted that interest rates have remained elevated. However, central banks are beginning to pivot to monetary policy easing as global inflation approaches set targets.
On the domestic front, analysts highlight the resilient economic growth but still elevated inflationary pressures indicated in the further uptick in the June inflation print (34.19% y/y).
Additionally, Cordros pointed out the increased volatility in the naira primarily due to muted FPI inflows and frail FX interventions from the CBN.
“Therefore, we expect the MPC to maintain a tight monetary policy stance at its upcoming meeting to (1) reduce the negative real rate of return, (2) manage inflation expectations, and (3) stabilize the naira. As a result, we expect the CBN to raise the MPR by 100 basis points to 27.25% in its meeting next week,” the experts reiterated.
Headline inflation increased further in June, rising by 24bps to 34.19 percent y/y (May: 33.95% y/y) primarily due to the exchange rate pass-through on commodity prices, high energy prices and increased food shortages. Similarly, the month-on-month inflation print came in at 2.31 percent m/m (+2.14% y/y), owing to higher food prices following the increased consumer demand from the Eid-el-Kabir celebration.
As a result, food inflation rose by 27bps to 2.55 percent m/m (May: +2.28% m/m), pushing the y/y rate higher to 40.87 percent (May: 40.66% y/y).
Similarly, core inflation rose, albeit moderately, by 5bps to 2.06 percent m/m (May: +2.01% m/m) following the slight naira depreciation amid a slower increase in energy prices. On a year-on-year basis, core inflation rose by 36bps to 27.40 percent y/y.
