The Central Bank of Nigeria released its Purchasing Managers’ Index

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The Central Bank of Nigeria (CBN), earlier in the week, released its Purchasing Managers’ Index (PMI) report for the month of January, showing that manufacturing and non-manufacturing activities remained healthy posting expansions of 57.3 and 58.5 respectively. It worth of notes that the continued strengthening in the survey result is consistent with notable positives in the overall economy, including (1) the apex bank’s sustained commitment to forex stability, (2) broadly positive expectation of output growth in the fourth quarter of the year, and indeed 2018 (3) improving inflationary conditions, with headline inflation rate moderating to 15.37% in December, and (4) rallying crude oil prices. Amidst strengthening macroeconomic fundamentals, rising crude oil prices and stable oil production, the leading indicator suggests a positive outlook for the Nigerian economy.

Money Market

In line with our expectations, the overnight lending rate rose by 683 bps to 12.17%, against last week’s close of 5.33%, as outflows via OMO and FX sales valued at NGN491.06 billion and USD210 million, outweighed inflow of matured OMO bills and coupon payment (on the 27-JAN-2021 bond) valued at NGN22.33 billion and NGN49.61 billion, respectively.

Opinion: it is likely the overnight lending rate threads further north in the coming week, as next week’s inflow of NGN67.68 billion, is likely to be offset by outflows.

Treasury Bills

Proceedings were bullish in the NTB market, as average yield declined by 35 bps w/w to 13.81%, despite tight liquidity position. Yields moderated at the short (-98 bps) and mid (-13 bps) ends of the curve while the long (+4 bps) end came under pressure. At Wednesday NTB auction, yields closed lower (in line with our expectation) across the 91-day (12.00%; previously 12.10%), 182-day (13.65%; previously 13.75%), and 364-day (13.70%; previously 13.79%) bills – reflecting strong demand amid improved liquidity position, in addition to strengthening expectation of monetary easing, healthy offshore participation, as well as improving inflationary condition.

Analyst is of the opinion that it is likely expected squeeze in system liquidity will constrain demand and cause yields to expand in the secondary market over the coming week.

Foreign Exchange

The NGN appreciated against the USD by 0.27% to NGN363 in the parallel market, while it depreciated by 0.10% to NGN360.70 in the I&E FX window. Trades in the I&E window remained healthy, although declining by 10.68% to USD1.06 billion, compared to USD1.19 billion recorded in similar period last week. Notably, during the week, the apex bank injected USD210 million into the FX market, comprising USD100 million, USD55 million, and USD55 million disbursements to the wholesale, SMEs, and invisibles windows, respectively.

Analyst believe stability in crude oil earnings will continue to shore up the foreign reserves, providing the necessary buffer for the apex bank to further, and perhaps improve interventions by the in the FX market, thus bolstering the naira.

 


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