Criticism trails CBN’s decision to hike MPR to 14%

Emma Ujah, Abuja Bureau Chief, Babajide Komolafe & Peter Egwuatu
ABUJA—The Central Bank of Nigeria(CBN), yesterday, jerked up its Monetary Policy Rate  (MPR)to 14 per cent, attracting criticism from  business experts who predicted that the hike will lead to increased  corporate failures, unemployment  and decline in the nation’s stock market.

At the end of its Monetary Policy Committee (MPC) meeting in Abuja yesterday, the CBN, raised the MPR from 12 percent  to 14 per cent, while retaining the Asymmetric Window at +200 and -500 basis points around the rate. The apex bank also retained the Cash Reserve Ratio (CRR) and the Liquidity Ratio at 22.50 per cent and 30.00 per cent, respectively.

Governor of the CBN, Mr. Godwin Emefiele, who announced the outcome of the MPC meeting, said that the move was towards ensuring price stability as it would attract more inflow of foreign exchange into the country.

Justifying the new rate, he said, “Basically, the issues were that you notice during the May meeting, the MPC decide to say look, if we notice the balance between inflation and growth that we should stay with growth and expect that growth.   But given the fact that monetary authorities cannot directly influence, we expect that working with fiscal authorities, we can achieve growth

But at this meeting,  we took a lot of time to deliberate on whether to favour growth as against inflation.

“We felt that there was a need in line with the CBN core mandate to look at price stability at a time- that if we favour price stability at this time and it signals an interest rate movement that will curtail inflation that when we curtail inflation, a lot more stakeholders interests would have been met, thereby encouraging in this case the inflow of capital into the country.

“And as we have more inflow of foreign exchange into the country, what that does is that it deepens forex supply base and by deepening the forex  supply base it makes  forex  available to end users , particularly to the manufacturing sector who need raw materials to boost manufacturing and industrial capacity and we are also hoping that when this is achieved, what you find is that naturally, prices would be affected downwards.

“When you have a situation when foreign exchange is also made available to those who want to import agriculture inputs, insecticides or plants it helps to boost agric productivity which will also help to moderate the effects on prices downwards.

“What this does is that it generally creates activities that would boost not just manufacturing outputs but will indirectly push growth forward. That was purely the essence of let’s push to the direction of inflation and price stability which was the focus of this meeting against growth.

“It didn’t mean that we didn’t have growth at the back of our minds.   But we felt let’s start by looking at price stability.   Push towards curtailing inflation, and at the same time ultimately see how we can achieve growth in the same vein.”

Hike will worsen economic situation

Analysts however faulted the decision of the MPC to hike the MPR saying it would worsen the economic situation in the country.

“This is not an answer to recession, the answer is to make more money available, but the CBN has decided to be tactical because growth is a long term goal”, commented Mr. Bismarck Rewane,   Managing Director/Chief Executive, Financial Derivatives Limited

“He stated that the MPR hike, “Is a formalisation of what is happening in the money market, where treasury bills rate are already higher than 14 percent hence it would not have effect on interest rate in the market. But it will increase cost of borrowing especially for small and medium enterprise (SMEs), increase default on debt, corporate failures and hence increase unemployment. It will also increase cost of borrowing for state governments. It will increase appetite for regulatory borrowing, because banks would now prefer to buy treasury bills and bonds which now offers higher rate. However it will make the naira to strengthen.

According to the Managing Director, APT Securities and Funds, Mr. Garba Kurfi, “

The upward increase in interest rate by the CBN is not the best at the moment if government is serious in encouraging local production.   This is because high interest rate will make the cost of production higher if producers are to get loan at higher rate from the financial institutions. The high interest rate will discourage investments in the capital market if one can get 14 per cent risk free from the money market. This move apparently is likely to promote money market but with the inflation rate at 16.5 per cent may encourage”.

Also commenting, Head, Investment Research, Cowry Asset Management Limited, Mr. Edgar Ebinum said,   “The reason for the hike is obvious but it is challenging for capital market, and it would stifle borrowing.  While it is necessary to ensure a positive real return, by making the interest rate higher than inflation, but investors look beyond interest rate, the conditions in the economy is still not attractive to foreign investors

The decision will cause the real sector to slow down, because there would be reduction in lending to the sector. In fact the hike makes lending more difficult for banks. The banks are already battling against rising non-performing loans and hence have reduced lending activities”.

Speaking in the same vein, Managing Director, High Cap Securities Limited,   Mr. David Adonri said, “The increase in MPR to nearly match inflation rate is expected response from the monetary authority. It will crowd out credit from real sector and depress equities market. The manufacturers would be affected as credit would be on the rise. Response of fiscal authority should be to reduce domestic borrowing and move towards fiscal consolidation”

On his part, Mr. Kunle Ezun, a research analysts with  Econbank Plc noted, “The decision was expected and the expectation has been factored into transactions in the money market. Remember that TBs were been sold at 14 per cent last week. That is why the market is calm.

“I also believe that the 200 basis point raise is sufficient to address the rising inflation level now. The reality is that inflation level is more of consideration to foreign investors and they are not in the market now. The local guys don’t really bother about inflation.”

The hike in MPR was however commended by Managing Director, Chief Economist,Africa, Standard Chartered Bank, Mrs  Razia Khan.  She said, “The decision to raise the monetary policy rate despite growth concerns will give investors a clear signal on the authorities’ intent to sustain FX reforms.   This should be well-received.

“Given the cost-push nature of inflation in Nigeria, which largely stems from the shortage of FX, we believe that this was the right thing to have done.   Today’s monetary policy decision demonstrates a commitment to FX liberalisation, which alone will undo some of the bottlenecks that have contributed to inflation.

“As Nigeria embarks upon the path of reform (FX liberalisation, fuel price deregulation, transparency initiatives, efforts to boost revenue mobilisation, power sector reforms), all with a view to easing the economy’s transition to lower oil prices, and creating the foundation for more sound long-term growth, we think that today’s MPC decision represented an important initial step in the right direction.

Chief Executive Officer, SOFUNIX Investment and Communications Ltd and Chartered Stockbroker     Mr. Sola Oni,  said The Central Bank of Nigeria (CBN) has pushed up the Monetary Policy Rate (MPR) from 12 per cent to 14 per cent on the basis that the existing nominal anchor is a disincentive to investment for both foreign and indigenous investors, particularly, when compared to the current inflation rate.

In portfolio management, the logical assumption is that relationship between interest rate and stock market is inverse. This implies that when interest rate is low, speculators move their funds from the   money market instruments’ to the stock market to make a kill.

As a corollary, the same speculators move from the stock market to other asset classes, especially, fixed income securities when the interest rate is high.

By this logic, one can assume that the current increase in the MPR would boost investment in the fixed income securities while it may depress investors’ appetite for equity investment.

But the fact remains that it is not always so as economists would say ceteris paribus which means all things being equall. There are many exogenous factors that affect investment decision at the level of investment objective. As for the economy, the stock market mirrors the economy.

Therefore, it is not cast in iron to just conclude that the CBN’s increase of the MPC to a 10 -year high will have negative impact on the stock market.”

Nigerian Olympic Team Coach Robbed In The US

Nigeria Olympic team coach Samson Siasia has been robbed in Atlanta, Georgia, where his team have been training ahead of next month’s Olympic Games.

“It is true that my car was burgled but I have taken the necessary steps on the item stolen in the car,” Siasia confirmed.

“We are focused and preparing hard for the Olympics that is what I can tell you for now.”

Siasia’s team are due to play a final warm-up game against Honduras Olympic team on Tuesday before they depart for Brazil on Friday.The car Siasia has been using to run around for the team was broken into at the team’s hotel’s car park and his credit cards, two phones, the phone of his personal assistant Abu and some money were taken away.

Indian Refiner ignore Nigeria's oil, focus on Malaysia

A number of Indian state-owned refiners have been actively picking up Malaysian oil cargoes for loading in July and August amid growing uncertainty over the exports of Nigeria’s crude grades, according to regional sweet crude traders.

Bharat Petroleum Corporation Limited on Monday issued a spot tender to purchase several Malaysian light sweet crude grades, raising expectations that more Indian end-users could switch their focus to Southeast Asian supplies, Platts reported.

BPCL was said to be seeking up to one million barrels of various Southeast Asian light sweet crudes, including Malaysia’s Miri Light, Labuan, Tapis, Kikeh, Kimanis and Bintulu as well as Brunei’s Seria Light and Champion crudes for loading over September 11-20, according to an official tender notice seen by S&P Global Platts.

According to the latest shipping fixtures seen by Platts, India Oil Corporation fixed Olympic Sky and Seafalcon to move a total of about 1.2 million barrels of Malaysian Labuan crude for loading in July, while BPCL fixed Nordic Jupiter, Mare Siculum, Shah Deniz and Pavino Spirit to move around one million barrels each of light sweet Kikeh and Kimanis crudes for loading in July.

The tender closes July 22, with validity until July 26. The latest spot tender raised a few eyebrows in the Asia-Pacific sweet crude market, as the Indian state-owned company does not regularly seek Malaysian and Bruneian crude grades in the spot market.

“BPCL, like many other Indian state-run companies, prefers to take Nigerian light sweet crudes like Qua Iboe and Bonny Light. Those are the number one choices,” the source said, adding that “when production [of light sweet Nigerian grades is] in doubt, the next best option would be Malaysian (grades).”However, BPCL’s latest move was seen as necessary, as the procurement of any Nigerian crude grades would be a big risk amid ongoing production hiccups caused by militant attacks in the Niger Delta, a company source said Tuesday.

Late last week, Mobil Producing Nigeria, a subsidiary of ExxonMobil, said Nigerian crude grade, Qua Iboe, had been placed under force majeure and exports were halted, while Italian company Eni confirmed earlier this month that 4,000 barrels per day of oil equivalent of equity production had been shut in following an attack claimed by Nigerian militants in the Niger Delta.

Nigerian militant group, the Niger Delta Avengers, said Friday that it would not permit foreign oil companies operating in the Niger Delta region to carry out repairs on bombed oil pipelines, threatening more devastating attacks on any repaired facility.

“There is no guarantee the Nigerian crudes will load and set sail safely. It’s very risky,” said a Singapore-based sweet crude trader.

The Independent Corrupt Practices and other Related Offences Commission (ICPC) has signed a Memorandum of Understanding (MOU) with the National Association of Nigerian Students (NANS) to check corrupt practices in higher institutions.

A statement signed by Mrs Rasheedat Okoduwa, the commission`s spokesperson, on Thursday in Abuja, listed the corrupt practices to include indiscipline, examination malpractice, extortion and sexual harassment, among others.

Okoduwa said that the MOU was aimed at getting students involved in the anti-corruption campaign and to educate them on how to report corruption cases to ICPC for prosecution.

She said that the MOU would also encourage students and teachers to engage ICPC through its training arm, the Anti-Corruption Academy of Nigeria (ACAN) in research on corruption and related matters.

The commission’s Secretary, Mr. Elvis Oglafa, was quoted in the statement as saying that the commission was “looking at a bigger picture where institutions of higher learning can achieve 100 per cent discipline and zero tolerance for corruption’’.

“But with the signing of the MOU, a new door has been opened for the reporting of such vices.’’Oglafa, the statement added, stated that over the years, NANS had not provided any platform which could enable its members to report corrupt practices within the educational system.

He expressed optimism that since Nigerian students had demonstrated willingness to confront corruption, a new vista which had just been set, would cleanse the system of the debris of corruption in institutions.

“NANS President, Mr Tijani Usman, commended ICPC for the initiative and affirmed that Nigerian students were willing to fight corruption because they were always at the receiving end of its adverse effects.

“The MOU was signed on behalf of ICPC by the Secretary to the Commission and Usman, the head of the students’ delegation, on behalf of Nigerian students,’’ Okoduwa said in the statement.

Photo shoots from Dallas slain polce funeral

Iraqi security forces celebrates victories over islamic state jihaist group

Iraqi security forces paraded through Baghdad on Thursday to celebrate victories over the Islamic State jihadist group, but an unannounced rehearsal two days earlier put a damper on the festivities.

Prime Minister Haider al-Abadi reviewed the forces from a pavilion as they passed through central Tahrir Square, and military jets and helicopters overflew the city.

The parade was held to mark “the liberation of Fallujah and Ramadi and all the Iraqi territory that was liberated,” defence ministry spokesman Brigadier General Tahseen Ibrahim told AFP, referring to two key cities recaptured from the jihadists.

But an unannounced rehearsal for the parade held on Tuesday, in which many roads were closed and military vehicles drove through the city, inspired fear rather than celebration.

Some speculated on social media that it was a message to protesters planning a demonstration on Friday that Abadi has called on them to delay, while others speculated that it could be a military coup.

Iraq announced the full recapture of Fallujah, a city 50 kilometres (30 miles) west of Baghdad that had been outside government control for more than two and a half years, at the end of June.

Ramadi, the capital of Anbar province, was declared to have been recaptured at the end of December, but fighting in the area continued into this year.

More recently, Baghdad’s forces seized a key military base south of Mosul from IS that the Pentagon has said will serve as a “springboard” for the push to retake the last IS-held city in Iraq.

IS overran large areas north and west of Baghdad in 2014, but Iraqi forces backed by US-led air strikes and training have since regained significant ground.