May 23, 2019/Coronation Report
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held its Monetary Policy Rate (MPR) 13.50% at the conclusion of its meeting on Tuesday.
Recently re-appointed CBN Governor Godwin Emefiele caused a stir by stating that banks might be discouraged from holding government securities. He appears frustrated by slow economic growth and slow customer loan growth (see pages 5 &6).
Liquidity conditions in money markets are good although a 1-year risk-free yield at 12.99% early this week looked excessive. The current CBN open market operation 1-year yield is 14.24% and the 1-year T-bill yield is 13.98%. This is down from 14.68% when the MPC last met in March and from 17.34% in mid-February.
We hold to our view that market rates need to be 250-300bps above inflation (April: 11.37%) to sustain FPI and protect FX reserves. Therefore, we think that domestic inflation holds the key for rates going forward. And inflation is proving difficult to bring under 11.00%.