CBN Holds a Foreign Portfolio Investment (FPI) Call

Yesterday, the Central Bank of Nigeria (CBN) hosted a Foreign Portfolio Investor (FPI) call, and notable points pertaining to monetary policy focus in attracting increased foreign investment and promoting a conducive investment landscape were discussed. These talking points are summarized below:

• The CBN confirmed plans to increase frequency and size of Open Market Operation (OMO) auctions immediately. A guidance for an auction today has been released
• The CBN guided for higher rates at the primary market auctions and noted stop rates would be expected to edge closer to the Monetary Policy Rate (MPR)
• Following the discontinuation of discretionary Cash Reserve ratio (CRR) debits, banks with an effective CRR above the current 45% threshold would receive a refund. Moreover, banks with an effective CRR below the 45% threshold will have to fund the outstanding
• Supplying of FX to Bureau du Change (BDC) is aimed at fostering stability, not fixing the exchange rate
• The CBN is expected to clear the FX backlogs over the next few days. We may recall at the recent Monetary Policy Meeting (MPC), the governor stated that USD400mn of the outstanding USD2.2bn had been cleared

Overall, the CBN is prioritizing development of a functional FX market with sufficient liquidity. On inflation, the CBN committed to rein in inflation with a clear view of the underlying drivers, which include FX pressures. Finally, the apex bank stated it will continue to supply and intervene in the FX market in the advent of any distortions. Its short-term priority remains providing ample FX supply for the free entry and exit of foreign investors.

In our view, we believe the CBN’s efforts to promote transparency and accountability in the financial markets would likely yield fruit in restoring market confidence. Regarding our capital market expectations, we maintain our view of higher short-term rates in the fixed income market. We believe stocks with strong earnings fundamentals would likely outperform, with banking tickers leading the foray given positive prospects from increased net interest income.