Senior Research Analyst at FXTM
Nigerian
stocks are on route to ending the trading week almost 1% higher after the Central Bank of Nigeria (CBN) expressed
optimism over the economy during its 274th Monetary
Policy Meeting (MPC).
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Buying
sentiment towards the All Share Index (ASI) found further support from giant Dangote Cement, after the company
revealed share buyback plans. According to the CBN governor, the “Nigerian
economy is still very strong and resilient” in the face of COVID19 with the banking sector weathering the current storm.
However, as coronavirus cases in Africa’s largest economy near 39,000, concerns
are likely to mount over renewed lockdowns and rising unemployment. Given the
constant disruptions, chaos and economic instability caused by COVID-19, the
outlook for Nigeria and many other emerging markets remains clouded by
uncertainty.
Rising
inflationary pressures in Nigeria are likely to discourage the CBN from cutting
interest rates anytime soon. The Central Bank left benchmark interest rates
unchanged at 12.5% during its meeting in July, and this may remain the status
quo for the rest of 2020. With interest rates expected to remain unchanged,
more attention will be directed to unconventional monetary policy tools and
fiscal policy which is seen as a sharper and more effective weapon against the
coronavirus menace. The Federal Reserve approved a 2.3 trillion Naira stimulus
boost at the end of June to bolster key sectors of the economy with a 12-month
timeline for implementation. Will this have the desired impacts on economic
growth? Time will tell.
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External
factors in the form of Oil prices, US-China
trade tensions, China’s economy and the Dollar’s performance among many
other themes will influence Nigeria’s growth outlook for 2020. Oil’s
performance over the next few weeks will determine whether OPEC+ made the right move to taper record production cuts from 9.7
million barrels to 7.7 million. Speaking of commodities, Gold has jumped to a fresh 9 year high above $1895. This is good
news for Nigeria after the country refined its own Gold and purchased the
product into a new Gold reserve
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