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Report
How investors perceive Nigeria's rebased GDP, CPI
Guardian Nigeria
Follow
2/3/2025
Category
🗞
News
Transcript
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00:00
Emmanuel Odiaka, CEO of Aircorp Capital, believes the rebasing of Nigeria's Gross Domestic Product
00:05
and updating the Consumer Price Index will reshape investors' perception and economic
00:11
policies. In his note, he expects yields in the bonds and treasure bills market to adjust
00:17
depending on inflation trends post-rebasing. Well, he joins me now to unpack the outcomes
00:22
from a rebased economy. Thank you so much, Emmanuel. Pleasure to have you on the show
00:26
with us. Whilst so many expect, so much expectations when it comes to the rebased GDP and CPI,
00:33
for you, starting with the bonds market, you say that with a rebased larger GDP, Nigeria
00:39
may be perceived as having a better capacity to repay its debts and that may make Nigerian
00:45
bonds more attractive to investors. Talk to us about that from a debt point of view.
00:52
Yes, certainly, Esther. With the oncoming rebased GDP, we are likely going to see a
00:59
reflection of a bigger market, economy, covering social capital activities, covering the modular
01:09
refineries and a whole lot of other activities and expansion that we are going to see. Typically,
01:18
let me just bring you back to the closing of the year where market was printing possibly
01:22
at about 23.84% on OMO issuance and at about 23% on the NTB space. With those news filtering
01:34
into market, what we have seen already is market capturing and pricing in those activities
01:39
because we are beginning to see more activities from foreign portfolio investors. We have
01:44
also seen them shift from the OMO space to the NTB space and there are rumours already
01:49
that there are lots of interest coming into the bond space. We are seeing yield decline
01:54
as a result of these aspects because of the possible import of the GDP and CPI issuance
02:02
rebasement. We're expecting to, especially for the CPI side, to give us a better picture
02:08
of inflation trend, if it's trending higher, if it's trending lower, and of course we know
02:12
more items will be captured in that space. But isn't that where the issue is? If we see
02:20
that when the new CPI comes out, if we see that there is still pressure, especially maybe
02:26
on the food component, what does that mean, for instance, for the monetary authorities?
02:33
Yes, Asa, you know that what we have previously, the food basket captures a whole lot chunk
02:39
of the inflation competition. But what we are going to see now is that additional items
02:46
have been added. So we are moving from 740 items to about 960 items. That will decelerate
02:54
the influence of the food basket on CPI competition. And from the rumours we are hearing, from
03:01
numbers that are already filtering in, we are likely going to see a 200 basis point
03:05
decline in CPI figures. While government is targeting about 15% per annum at some point
03:13
towards year-end, we are certainly going to start seeing those decelerations. So in terms
03:19
of how the monetary policy authorities will see it, yes, we cannot run from the truth
03:27
that commodities and pricing in the market might not change immediately to affect the
03:32
average Nigerian. But working with data at this point will reflect that the tightening
03:39
monetary regime we have experienced in the last 9 to 12 calendar months will start taking
03:46
impact and that might give them the impetus to want to hold instead of the continuous
03:51
tightening we have been seeing. So basically it will give them more comfort and make the
03:56
MPC relax a little bit. Yes. And hoping that the fiscal authorities with the new information
04:02
can, you know, will be better informed from a policy decision point of view. Yes, certainly
04:08
that's what it's going to be. It affects both the fiscal and monetary authorities because
04:13
with the larger economies, foreign direct investors are going to be nosing around and
04:19
having that much more confidence to come in, which will affect our fiscal balances. Right.
04:23
And that will also give the monetary authorities some, you know, some ease at this point in
04:28
time to look inwards and take a pause on monetary tightening. Already we have seen
04:34
the impact on the foreign exchange market where you just mentioned that, I mean, the
04:40
Naira appreciated to about 1,472 in the B-matching space or, you know, the Niger Interbank foreign
04:50
exchange market. So the effect we are seeing right now are the effects of both foreign
04:55
direct investors and more especially at this point, the foreign portfolio investors having
05:00
that confidence to inflow hard currency into the economy. Right. And what about bank rates?
05:05
I mean, what impact can we expect? What changes? Yes, what changes in this aspect is that with
05:10
a bigger economic space, the banks might start seeing that there are possibilities to jump
05:15
into the space and assist in growing the real economy, the real sector economy. What we
05:22
are likely going to see is that as soon as NPR starts decelerating, we might start seeing
05:30
interest in the capital space to lending again. At this point, with prime lending rates as
05:36
much as 37 percent, I don't know which businesses are taking such funds. But after now, we are
05:43
likely going to see the banks start easing once monetary policy rates start easing and
05:49
the bankers feel safer to lend at this point. And this is what? What are we talking? Weeks?
05:54
Months? Oh, no. We are some months way off about it. Of course, we are going to wait
06:03
for the monetary policy authorities to come up with their monetary policy decisions by
06:10
this month. And we'll see what the policy outcomes are. Banks and the markets will be
06:16
taking a closer look at all this. We have just one minute left. Back to the bonds markets.
06:21
I mean, the yield curve. Talk to us about, we've seen, I mean, subscriptions for, we've
06:25
seen a Q1 calendar, Albo. Talk to us about this, the rally that we're seeing right now.
06:29
Do you think that, do you see it being sustained? Well, there were a whole lot of concerns concerning
06:37
deficit financing in the budget, which was in a seven point something trillion, Naira.
06:44
We have also seen market go into uncharted waters because, Esther, at some point the
06:50
OMO rates was printing about 33.4% in effective yield. We've not had such figures, such numbers
06:57
before. The bond space also did print about 22.6, so we're having a coupon in 2025 January
07:05
that is printing at 23.6. These are uncharted waters. We have not seen that before. Initially
07:10
market took it with a pinch of salt. When you move into unknown territories, you know,
07:17
you need to be careful at such space. But what we have seen, it's a market confidence
07:22
that is reboosting itself and looking at those figures, looking at those cash flows and feeling
07:27
like, you know what, these are investment stocks. At Acob Capital, we are buying at
07:34
this level. There's no analysis at this point, especially considering the fact that at some
07:39
point we may have some positive carry. Well, that is definitely interesting and we're really
07:44
looking forward to see how this plays out. But thank you so much for sharing that perspective
07:48
with us. We appreciate your time on the show today. Emmanuel Odiaka, CEO of Acob Capital.
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