Following increased spending by politicians owing to the forthcoming 2015 general election and fears over Nigerian banks’ ability to manage excess liquidity, further tightening by the Central Bank of Nigeria (CBN) via the Cash Reserve Ratio (CRR) is likely, starting next month, for private-sector deposits, analysts at FNC Capital have said.

The last Monetary Policy Committee (MPC) meeting for this year will hold mid-November and the CBN governor, Mr. Godwin Emiefele, made a solemn promise that there would be no rate cuts before the elections in February.

Analysts who pleaded anonymity said the MPC has lost patience with the banks’ inability to manage liquidity.

“If they are considering further tightening via the CRR, it means they want to mop up capital. Some have argued that what happened in Europe where some banks failed stress test could be responsible. I disagree, for Nigeria that cannot be the main reason. I don’t know by what basis points they want to raise it but it is another way of hiking interest rate. December is near and there is going to be increased spending for the yuletide and spending for the 2015 elections so it is understandable, “said a market analyst.

FBN Capital also predicted limited pick-up in inflation on deregulation of the downstream sector of the nation’s petroleum industry.

According to FBN Capital, “We expect another attempt at fuel subsidy removal after the elections, which would push headline inflation briefly into double digits. Successful or not, there would be fiscal gains.”

The experts added that the CBN will focus on the exchange rate, as before stressing that, “Monetary policy rests upon the attainment of exchange-rate stability and we feel the CBN will be able to hold the line, subject to a small adjustment to the corridor mid-point in 2015.”

While restating that Nigeria remains a positive landscape for investors, the analysts said: “We see naira stability, a tight monetary stance and relative fiscal discipline through the polls to end-2015. The risks lie in tightening in the US and, notably, further contraction of oil revenues.”

They added: “The direction for market rates in the present cycle in our view is flattish/slightly higher. The FGN bond curve has flattened, so we would suggest exposure at the shorter end. Investors should always be alert to potential external shocks.”


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