At the 58^th Annual Banker’s Dinner organized by the Charted Institute of Bankers of Nigeria (CIBN), the central bank governor Mr Olayemi Cardoso highlighted some of his thoughts on the Nigerian economy and operations of the apex bank which have implications on the investing community.

The key points raised that we believe would have significant implications on investors and the financial system at large are:

1. A Refocus on Orthodox Monetary Policy and Price Stability:
   This was the central theme of the governor’s address. He spoke on the need for the apex bank to return to its key mandate of ensuring price stability by utilizing its monetary tools and seeing to the proper transmission of decisions at the Monetary Policy Committee (MPC) meetings to the financial system. This would see the apex bank adopt a new inflation targeting framework and the provision of forward guidance on interest rate direction.

   The second part to ensuring price stability would be the bank’s focus on the Foreign Exchange (FX) market. The governor reiterated the bank’s commitment to clearing all FX backlogs and the development of new operational guidelines for the market.

2. Transition From and Eventual Cessation of Interventionist Activities:
   Prior to the new CBN administration, the apex bank had rolled out several intervention projects and funding channels for manufacturers, youth empowerment projects, power etc. It is the view of the new CBN administration that these interventions distract the bank from its core mandate and would jettison these intervention channels to focus on its core mandate of ensuring price stability.

Likely Impacts On Financial Markets

Fixed Income: Given the apex bank’s determination to adopt an orthodox monetary policy stance that transmits in full to financial conditions, we expect yields in the fixed income space to stay elevated with an upward bias as the CBN trends the Monetary Policy Rate (MPR) higher to combat inflation. This would provide improved returns to fixed income investors in the short to medium term.

Equities: Given the bank’s hawkish stance and outlook in the near to medium term, we anticipate weaker performance in the equities market as investors rotate into the fixed income space which would provide higher risk-free returns. Also, increased cost of borrowing would thin out profit margins for companies thereby putting further downward pressure on the equities market.

FX: The clearing of matured FX forwards stemmed the continuous depreciation witnessed on the exchange rate. As the apex bank strives to boost liquidity in the FX market, we foresee further improvements in the exchange rate and a reduction in the gap between the official and parallel market.