Over N9.6 trillion worth of government securities are expected to mature in the financial market between August and December according to FSDH Research, an arm of FSDH Merchant Bank Limited.
A total inflow of about N1.54 trillion is expected to hit the money market from the various maturing government securities and the Federal Account Allocation Committee (FAAC) in August 2019.
The firm estimates a total outflow of approximately N1.45 trillion from various sources, leading to a net inflow of about N89.81 billion.
Ayodele Akinwunmi, head of research, FSDH disclosed this in Lagos during the firm’s monthly economic and financial markets outlook presentation titled ‘Easy Money: Time to Create Buffers’. He added that the CBN may use Open Market Operation (OMO) to mop-up this expected huge inflows.
He said the Federal Government may take advantage of the current low interest rate to access long-term debt and channel it specifically towards building the capacity of the economy to generate more revenue.
Many Central Banks in both advanced and developing countries are adopting expansionary monetary policy stance in order to stimulate economic growth.
Specifically, the Federal Open Market Committee (FOMC) of the U.S Federal Reserve System cut the interest rate in July 2019, the first rate cut since 2008, the Bank of Japan maintains a negative policy rate, and the European Central Bank keeps its interest rate at zero.
Furthermore, the Bank of England maintains the interest rate at 0.75 percent, which is considered low compared with the historical average of 3.89 percent between 2006 and 2009 the South African Reserve Bank lowered its interest rate in July 2019 and the Central Bank of Nigeria (CBN) also lowered its interest rate in March 2019 and has indicated its preference for low interest rate, causing yields on fixed income securities to drop.
The CBN in March 2019 cut its benchmark interest rate by a 50 basis point to 13.5 percent from 14 percent since July 2016.
FSDH Research warns that the current developments in the global financial market may change, leading to rising interest rate and possible capital flight, particularly from developing countries. Therefore, companies and countries need to build buffers to protect themselves.
“If the current trade tensions between the US and China subside and the economic growth in the two countries returns to an upward trend, there may not be a need for excessive expansionary monetary policy”, Akinwunmi said.
