Analysts at WSTC Financial Services
Limited in its 2018 forecast has predicted a 200 basis point (bps)
reduction in the Monetary Policy Rate(MPR).
The firm stated this in its
2018 projection titled: “Nigeria in 2018, A tale of two halves,” made
available to THISDAY.
The Lead Analyst, WSTC, Mr. Olutola Oni noted that “monetary easing is now a matter of when, not if.”
The report added: “We expect the CBN to
adopt a dovish stance in 2018, although this should bear some
implications on inflation and capital flows.
“The CBN will witness renewed pressure to complement the economic growth agenda of fiscal policies ahead of February 2019.
“The ongoing sovereign debt portfolio
restructuring will enable the CBN mop up excess liquidity at lower cost
.We expect a 200bps reduction in MPR in 2018, with the first rate cut in
March or May.
“However, considerations about ensuring
positive real-returns and stability in the FX market should ultimately
place a floor on monetary easing and yield compression.”
The firm also anticipated stability in
the foreign exchange market, stating that there were few incentives for
the harmonisation of rates across various forex market segments in 2018.
It noted that increased exchange rate
exposure, resulting from the FGN’s debt substitution strategy, would be
an additional reason to avoid convergence of rates in the year.
“Inflows from oil earnings and proceeds
of external borrowings will further prop-up external reserves in first
half 2018. We expect a slowdown of inflows in the second half of 2018 as
election-related uncertainty kicks in.
“However, both the MPC and the
Presidency will favour forex stability ahead of the February 2019
general elections, hence, we reckon that FX rates will be managed across
the different market segments,” it added.
Commenting on its outlook for the stock
market, the report stated: “The equities market is expected to be driven
by liquidity in the forex market, improving economic activities,
impressive corporate performance and softer yields on fixed income
securities in first half 2018. FMCG, Industrial Goods, Banking,
Construction, and Upstream Oil & Gas are poised to benefit most.”
Continuing, it stated that regulation constitutes a key risk to the downstream oil and gas industry.
“We expect a modest contraction in net
interest margin in the banking industry in the first half of 2018. Also,
high oil prices, easier access to forex and improving economic
activities should strengthen asset quality and enhance modest credit
growth. Healthier consumer spending will be supported by declining
inflation & election- induced public spending.
“The performance of the Consumer Goods
& the Industrial Goods sectors will be driven by stable product
prices, healthier sales volume, lower debt burden, lower borrowing cost
& improved forex liquidity.
“Stability in forex and declining
inflation are expected to support lower input and operating costs. Thus,
we expect healthier margins from companies in these sectors.
“However, we reckon that a resurgence of
tighter liquidity in the forex market and heightened election-related
uncertainties in the year may dampen overall market performance in H2
2018.”
Furthermore on oil outputs, it added:
“Crude oil started off in 2018 with a multi-year high of $67 per barrel,
boosted by supply disruptions, record level of compliance among OPEC
members (and some other major non-OPEC producers) to the ongoing
production cut agreement and strong global demand.”
“With the ongoing alignment between OPEC
and non-OPEC members, the odds are stacked in support of favourable oil
prices in 2018. Heightened geo-political risks in the Middle East may
further unsettle market disequilibrium for longer in 2018.”
“On the domestic scene, we believe that
the FGN will be more inclined to managing the demands of militants in
the creeks. Hence, we expect a more stable production and evacuation of
crude oil from the Niger Delta,” it added.
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