Half-year review of Nigeria's forex markets
As the first half of 2017 rolls by, Kingsley Okereke, Treasury and Fixed Income Dealer, Diamond Bank joins CNBC Africa to review what has been an eventful six months for Nigeria's fixed income and forex space.
Thu, 29 Jun 2017 08:26:09 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Impact of increased liquidity and CBN interventions on exchange rates and investor confidence
- Challenges in inflation and food prices due to structural issues and FX policies
- Forecasts for currency trends, policy impacts, and foreign investor appeal in treasury bills and bond markets
The first half of 2017 has been eventful for Nigeria's fixed income and forex markets, with notable improvements in liquidity and interventions from the Central Bank of Nigeria (CBN). Kingsley Okereke, Treasury and Fixed Income Dealer at Diamond Bank, shared insights on the changes and their potential impact on the second half of the year. Okereke highlighted the positive effects of increased liquidity, consistent CBN interventions, rising oil prices, and improved oil production capacity on the forex market. These factors have led to convergence in exchange rates across various market segments, boosting investor confidence and contributing to broader economic growth. Equities market returns have seen significant gains, with a year-to-date return of about 21%, reflecting improved investor sentiment and confidence, especially from foreign portfolio investors. Inflation has also shown signs of improvement, dropping from 18.7% to approximately 16.25% by June. However, challenges persist, particularly in food prices due to structural issues and transient factors related to FX policies. The balance between maintaining exchange rates and addressing broader economic concerns remains a key consideration for policymakers. Okereke noted that the outlook for the oil price is mixed, with factors like production output and supply levels influencing market dynamics. The CBN's plan for rate unification and ongoing policy developments will be crucial in shaping future currency trends. While predicting exact exchange rate levels is challenging, Okereke emphasized the importance of holistic economic considerations in determining exchange rate outcomes. Shifting focus to the fixed income markets, Okereke discussed the impact of foreign investor flows on yields. While equity markets have attracted significant foreign investment, treasury bills remain a compelling option. CBN's tightening strategy through the OMO window has affected liquidity but kept rates stable. As inflation trends downwards, policy adjustments are expected to ease tightness, potentially leading to yield reductions in the fixed income space. Looking ahead, Okereke highlighted expectations for policy impacts on economic activities, supported by funding initiatives in sectors like power. The gradual influence of liquidity injections and multilateral loans is projected to strengthen the economy, prompting policy adjustments by the CBN. In this context, the appeal for foreign investors is likely to increase in treasury bills, impacting bond market dynamics. Should treasury bills continue to draw interest, bond market yields could see a decline as investor confidence grows. Overall, as economic events unfold and fiscal conditions improve, bond market yields are anticipated to gradually decrease. Okereke's insights shed light on the evolving landscape of Nigeria's forex and fixed income markets, emphasizing the interconnected nature of policy decisions, market trends, and investor sentiments.