Financial market activities calm, await MPC decision tomorrow

Movement in the key macroeconomic indicators including foreign exchange, interest rate, and bond yields is to be determined by the decision of the Monetary Policy Committee (MPC) tomorrow.

The MPC is scheduled to meet for its 250 meeting today and tomorrow to review global and economic developments within the last two months in the Nigerian economy.

This is coming against the backdrop of sustained pressure on domestic output and elevated headwinds in the economy.

Key indicators in the economy continue to worsen on the back of prolonged FX supply bottlenecks, delayed budget implementation, petrol market crisis, dragging consumer spending and weaker corporate earnings.

“The recent policy pronouncement by the minster of state for petroleum resources on guided deregulation of the petrol market is expected to take the centre stage, given the impact on key monetary policy variables going forward,” Ayodeji Ebo, head, investment research, Afrinvest Securities Limited, said in a report.

At the parallel market last week, the naira appreciated on Monday by 1.4 percent to close at N355/$ as against the previous Friday level of N360/$. This trend continued all through the week as the currency depreciated continuously against the greenback before settling at N346/$ on Friday, implying a W-o-W appreciation of 4 percent.

“In our view, the market may have fully digested the news flow on the liberalization of downstream petroleum sector that fixed PPPRA exchange rate at N285/$ – the reason for which parallel FX rate depreciated by 10.3 percent in the previous week. We expect the parallel market rate movement in the coming week to be determined by the decision of the MPC,” Ebo said.

Ahead of the MPC meeting scheduled to begin today, sovereign bond yields have been on the rise as investors expect a possible upward re-pricing of the MPR on the back of the rising inflationary pressures.

Average bond yields last week settle at 13.4 percent with a steady rise in all trading days of the week. We noticed increased buying appetite for longer dated bonds with term to maturity of three years and above as bond yields (excluding August 2016, April 2017 and July 2017) currently converge around 14 percent.