The foreign exchange (forex) market will witness stability in 2020, while the Central Bank of Nigeria (CBN) will continue to sustain its Open Market Operation (OMO) sales at high interest to continue to attract foreign investors.
This was the position of analysts at Cowry Asset Management in a research note: “Outlook and Investment Strategies for 2020”.
They said there would be an attempt by the monetary authority to drive down interest rate to single digit, adding that the Monetary Policy Rate (MPR) might be adjusted down to 13 percent from 13.5 percent to accentuate the permanency of low rate regime, at least in the medium term.
They said: “We expect CBN to sustain its OMO sales at high interest rates in order to attract foreign portfolio investors and maintain foreign exchange rate stability as OMO interest mature.
“This is because anticipated liquidity glut will depress interest rates and result in negative real returns on investment, a situation that could lead to a reversal of foreign exchange flows as well as speculative attacks on the Naira.
“Furthermore, we anticipate favourable global crude oil prices which in addition to sustained crude oil output – on account of relative stability in the Niger Delta – should lead to sustained crude oil dollar revenues, boosting Nigeria’s external buffers.”
On the anticipated effort to drive down interest rate to single digit, they said: “We believe the monetary authority will remain aligned with the fiscal authority’s economic growth objective by seeking to create and sustain conditions that will boost liquidity in the financial system in order to drive down interest rates to single digit.
“Thus, we expect interest rates to remain suppressed in 2020. In a complementary move, we suspect the Monetary Policy Rate may be adjusted downwards from 13.50 percent to 13 percent in order to further signal its expansionary monetary policy regime.
“This should result in a downward spiral of deposit rates as well as lending rates of commercial banks.
“Furthermore, we expect the monetary authority to continue to perform OMO auctions at attractive interest rates above the prevailing inflation rate in order to retain foreign portfolio investors, and hence, ensure exchange rate stability.”