No change to a winning formula –FBN Capital

The MPC again left its policy rate at 12 percent: This was the overwhelming consensus in the market, and was our call. The committee voted by nine votes to three to hold both the policy rate and the cash reserve requirement (CRR) for banks at 12percent, and their liquidity ratio at 30percent. In January, two of the ten members of the MPC in attendance had voted for a cut of 25basis points (bps) in the policy rate. Some readers (but not FBN Capital) might see the committee’s latest dark threats that easing would wait for fiscal and structural reforms, and wonder whether it will ever relax its stance.

A positive take on inflation: The communiqué ended with the claim that there are currently no inflationary concerns. It somehow contrived to argue that the return of single-digit inflation in January reflected both base effects and the committee’s tightening since Q3 2010. We hope that the personal statements of MPC members will share the CBN’s own forecasts and we conclude that the committee does not wish to encourage bullish commentary in the market.

More promising global outlook: The committee found that prospects had improved in the past two months and singled out emerging Asia. It lauded the monetary and fiscal easing in China for its boost to investment in infrastructure.

Some issues with fiscal policy: The MPC restated its reservations about the fiscal stance. It highlighted the dangers inherent in the National Assembly’s oil price threshold of $79 per barrel in the 2013 budget, which was signed into law by the president in late February.

Party almost over for FGN bondholders: We see yield compression on the more liquid FGN bonds of up to 100 bps in H1 2013. Movements in the FX market suggest a cooling of interest on the part of the offshore investor.