The Central Bank of Nigeria will sustain its expansionary monetary policy through the period of Q1, 2021 as it supports the growth and recovery of Nigeria from the current recession.
Cordros Securities disclosed this in a recent media briefing on its latest report titled “Positioning the New Normal”.
According to Jolomi Odonghanro, Head of Research & Strategy, Cordros Securities in his presentation said the accommodative policy of the CBN which is geared towards stabilizing the economy, will switch to tightening from Q2,2021.
Based on this projection he said market yields will remain in the low single-digit through H1,2021 with a moderate uptrend to account for reduced market participation as investors demand for higher yields.
In terms of foreign exchange management he said the CBN will sustain FX demand management strategy in order to support the naira amidst expected low oil prices.
On the concerns around devaluation of the naira currency, Odonghanro said it remained high, particularly if external conditions do not show significant improvement.
With the prospects of a widening current account deficit in the country, he said the ability of the CBN to defend the currency will be challenged in 2021.
Looking at Capital importation the analyst noted that inflows will remain subdued, more so with the capital control measures of the CBN.
From the analysis he estimated that the current account deficit for 2021 will be around $22.63bn, while the trade deficit is pegged at $3.93bn.
Giving further insight on Nigeria’s economic recovery, he said the Non-Oil sector will be the key driver with Services and Agriculture leading the growth which has been projected at 1.98% FY.
Providing insight on the headline inflation rate forecast for 2021, he highlighted the fact that on the base case with the re-opening of the land border and moderate depreciation of the currency it will hit 16.65% y/y (2021 FY average) and 15.43 y/y(by December 2021), while in the bull case with no electricity price hike and FX range on N380-N385/$ it will hit 14.73%(FY 2021) and 14.11%(by December 2021).
The bear case scenario for the headline inflation according to him is predicated on a situation where the land border is closed and the naira depreciates faster by N440/$ which will lead to a likely Full year average of 17.25% y/y and 17.52% (by December 2021).
Mr Christian Orajekwe, Managing Director, Cordros Securities Limited, called on the Federal Government, to explore fiscal incentives that could attract more investments into the economy and harped on effective partnership with the private sector to achieve an industrialized and competitive economy.
He believed it was time to implement far-reaching economic policies that will unlock opportunities for the private sector and businesses to invest in the economy.
The MD of Cordros Securities also called for the speedy signing of the Petroleum Industry Bill (PIB) into law and innovative strategies for the FG to diversify its revenue earnings from crude oil.