How investors perceive Nigeria's rebased GDP, CPI

Emmanuel Odiaka, the CEO of Ecob Capital, believes that the recent rebasing of Nigeria's Gross Domestic Product (GDP) and the updating of the Consumer Price Index (CPI) will have a significant impact on investors' perceptions and economic policies. Odiaka anticipates that the rebasing will lead to adjustments in yields in the bonds and treasury bills space, depending on the post-rebasing inflation trends. In a recent interview with CNBC Africa, Odiaka discussed the potential outcomes of the rebased economy and its implications across various sectors. One of the key points Odiaka highlighted was the potential positive impact on Nigeria's bond market. With a larger GDP following the rebasing exercise, Nigeria may be viewed as having a stronger capacity to repay its debts. This enhanced perception of creditworthiness could make Nigerian bonds more attractive to investors, leading to increased market activity and interest from foreign portfolio investors. Odiaka noted that there has already been a shift of investors from the Open Market Operations (OMO) space to the Nigerian Treasury Bills (NTB) space, with rumors circulating about growing interest in the bond market. Discussing the implications on inflation trends post-rebasing, Odiaka emphasized the importance of the updated CPI in providing a clearer picture of the inflation landscape. With an increase in the number of items captured in the CPI, particularly expanding from 740 items to approximately 960 items, Odiaka predicted a potential 200 basis point decline in CPI figures. This adjustment could contribute to decelerating inflation rates, offering insights for monetary authorities in shaping policy decisions. Odiaka further highlighted the potential effects on monetary and fiscal policies following the rebasing. The anticipated increase in confidence from foreign direct investors in Nigeria's larger economy is expected to positively impact fiscal balances, providing monetary authorities with greater flexibility. This enhanced confidence has already manifested in the foreign exchange market, where the Naira has shown signs of appreciation. In terms of bank rates and lending practices, Odiaka suggested that a larger economic space post-rebasing could encourage banks to engage more actively in supporting the real sector economy. As monetary policy rates potentially ease, banks may feel more secure in lending, leading to a gradual reduction in prime lending rates and increased capital flow into productive sectors. Regarding the bond markets and the yield curve, Odiaka acknowledged initial concerns about deficit financing in the budget but expressed optimism about the market's confidence in engaging with the evolving landscape. Despite entering uncharted territories with record-high OMO rates and bond yields, market confidence appears to be growing, with investors viewing opportunities for positive returns. In conclusion, Odiaka's insights shed light on the transformative potential of Nigeria's rebased GDP and updated CPI on investors' perceptions and economic policies. As the economy adjusts to the new realities post-rebasing, stakeholders across various sectors will closely monitor developments and adapt their strategies accordingly.