What financial market expect from finance minister

The much awaited inauguration of the Federal Executive Council (FEC) finally took place last week with the ministerial-designates allocated portfolios.

President Muhammadu Buhari opted for Kemi Adeosun, a seasoned investment banker, immediate past Commissioner of Finance in Ogun State, South West Nigeria and public finance expert to be the Minister of Finance. Okechukwu Enelamah, earlier tipped to become the Minister of Finance, was instead selected to Head the Ministry of Industry, Trade and Investment where he is expected to drive policies to resuscitate manufacturing and attract direct and portfolio capital. The other Ministers expected to form the core economic team of the President and drive economic policy initiatives include the Ministers of Budget & National Planning, Udo Udoma and Power, Works and Housing –  Babatunde Fashola, the former governor of Lagos State.

Consequently, important policy decisions lie ahead and the market would expect the Finance Minister to work out a co-ordinated policy framework along with monetary authorities to respond to the macroeconomic challenges of slow growth, heightened inflationary pressure, declining reserve buffers and exchange rate uncertainty, analysts at Afrinvest Securities have said.

Although analysts are moderately bullish on personalities of the aforementioned ministers to drive policy initiatives, the fact that the appointments were delayed for 5 months in a period of deteriorating macroeconomic fundamentals has set expectations high for them.

Already, investors in the fixed income market are pricing in a possible tightening of liquidity by the CBN post-cabinet inauguration, resulting in sell-down pressure across FGN-bond tenors towards the end of the week. Although there has been no official communication from the CBN on resumption of Open Market Operation OMO auctions,  “we do not foresee any monetary policy tightening in the short term given the deteriorating macroeconomic fundamentals”, Ayodeji Ebo, head, investment research and his team of analysts said in a report.

However, the market remained awash with liquidity all through last week which is in line with the trend that has been observed in recent time, consequent on the fact that mop up activities by the apex bank have been suspended for the past two months. Given the level of liquidity in the system, the Money market rates reached new year-lows during the week. On the first day of the week, liquidity level opened above N800bn, Open Buy Back (OBB) and Overnight (O/N) rates settled at 0.7 percent and 1.0 percent respectively. On Tuesday, liquidity level remained above the N800bn mark despite the provision for the special FX intervention slated for Thursday. However, Money market rates slid to a year low of 0.5 percent for the OBB and 1.0 percent for the O/N rate.

On Wednesday, last week, opening liquidity balance contracted to N500bn, which we believe is connected to the placement of funds by DMBs for the Bond auction which took place on the same day. Consequently the OBB marginally rose 13bps to 0.6 percent while the O/N rate remained flat at 1.0 percent. On Thursday last week, an OMO maturity worth N179.6bn hit the system, this increased the available levels of liquidity and resulted in a decline in the OBB rate to 0.5 percent. while the O/N still remained flat at 1.0 percent. At the close of the week, money market rates settled at 0.7 percent for the OBB and 1.0 percent (OBB) and 1.0 percent (O/N).

HOPE MOSES-ASHIKE