CBN, DMO Lower Treasury Bills Rates As Fiscal, Monetary Authorities Align

Nigeria’s fiscal and monetary authorities have arrived at a consensus on the need to end an extended period of policy misalignment that has existed between them in recent time.
The Central Bank of Nigeria (CBN) and the executive have been enmeshed in a sharp divide over the appropriate economic approach towards pulling the economy out of recession. In line with experts’ advice, the policy makers have found a common ground and braced up for a robust recovery that calls for a honest understanding of the problem, it was said.
“The great news is that the Central Bank of Nigeria (CBN) and the Debt Management Office (DMO) have started lowering Treasury Bill rates in a coordinated manner,” Rewane Bismarck, Chief Executive Officer of Financial Derivatives Company (FDC) Limited announced after its monthly Lagos Business School (LBS) parley last week.
Bismarck said the move is expected to catalyse the fiscal stimulus package and jumpstart economic growth. The restoration of oil production from Forcados and Qua Iboe terminal could quicken the recovery period from 24 to 18 months assuming no further surprises.
The DMO, which is under the federal Ministry of Finance issued Treasury bill at 18.3 per cent per annum, while the CBN had issued Open Market Operation (OMO) bills at 18.5 per cent per annum, sending mixed signals.
But now, both primary market and OMO rates are now moving lower MPC maintained status quo on policy rates & instruments.
Mr. Rewane however warned that in spite of the good news, the path to recovery is remains as treacherous as the route to decay.
In this edition of the LBS Breakfast Session, Rewane explains why the market value of the naira (N473/$) is sharply at variance with the true economic value of N302/$. He goes further to project that the naira will appreciate in the near term and says why this is likely to happen.
He said in the report that although negative growth (-0.5 per cent) is expected in 2016, recovery is expected in 2017 with growth forecast of 2.2 per cent.
Nigeria’s Inflation headline is already about 17.3 per cent. It is however forecasted to reduce up to an average rate of 15.4 per cent in 2017 and 11.5 per cent in 2018.
At the most, Rewane said recovery is very likely for the Nigerian economy in 18 to 36 months’ time, believing that improved revenues will reduce fiscal deficit.
Revenue and expenditure are expected to be below 2016 budget projections and overall fiscal deficit is expected 2.2 per cent of GDP. Thus the forex market is expected to stabilize at N350-N400/$ in 18 – 24 months (IFEM)
The last monthly allocation to the various governments for the month of August increased to N510 billion from N443.6 billion that was recorded in the previous month, driven by higher crude oil production and non-oil revenue from tax.
Although Excess Crude Account (ECS) declined marginally to $2.92 billion, Money to be shared by the Federation Account Allocation Committee (FAAC) for the month of October is estimated to gulp up to N750 billion, based on reopening of Forcados terminal and increase in prices of oil.

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