In the month of Jul-19, we saw a continued synchronization of an accommodative monetary policy tone across the globe as well as actual rate cuts. In retrospect, Monetary Policy Committees (MPC) in South Africa, South Korea, Indonesia, Brazil, Ukraine, Russia and the US among others, chose to reduce their policy rates on the back of concerns around global growth slowdown.
In the Eurozone, although rates were left unchanged, commentary from the chair sent a clear signal that a rate cut is imminent.
The global easing narratives seem to have created room for a more accommodative monetary policy in Nigeria. However, with Foreign Portfolio Investors (FPIs) accounting for the bulk of capital imported into the country, we do not see the prospect for a large or sharp reduction in the domestic policy rate beyond current levels, amid recent efforts by the CBN to bolster credit to the real sector.
Rather than a sharp reduction, we expect the MPC to ease the monetary policy rate gradually towards 13.0% in H2-19, most likely in two tranches of 25bps cut. To accommodate carry traders, we expect the CBN to sustain OMO issuances at competitive rates. In all, we anticipate the next rate cut to have a muted impact on both the fixed income and equity market respectively, given that market rates are already trading ahead of the MPC’s decision.
