Stockbrokers have expressed fears about the likely reversal in the policy of the Central Bank of Nigeria on permissible investors in the Open Market Operations, OMO.
The CBN recently announced the exclusion of non-bank locals (individuals and corporates) from investing in OMO at both the primary and secondary markets, implying that only Deposit Money Banks and foreign portfolio investors could participate.
This policy had crashed interest rates on Treasury bills and trimmed yields on bond, which prompted investors and fund managers to shift focus from the money market to the stock market, creating an increased demand for shares.
Worried by inconsistency usually associated with government policies in the country, the Chairman, Association of Securities Dealing Houses of Nigeria, Chief Oyinyechukwu Ezeagu, urged the Federal Government to sustain the current policy on OMO for enhanced attractive investment in the capital market.
He explained that the new policy on OMO had been very beneficial to the stock market, noting that the fall in interest rate created opportunities for higher return on equity.
According to him, investors are taking advantage of the inverse relationship between the money market and capital market.
Ezeagu, however, expressed concern about the sustainability of OMO policy going by uncertainties that usually characterises government policies in Nigeria.
He argued that the government might decide to reverse the OMO policy if banks mounted pressure that it was hurting their profit margin or if the CBN perceived a need to top up the nation’s external reserve.
He said, “It is too early to celebrate that the current rally in the stock market because of sustainability. Our concern is always policy uncertainty in Nigeria as this has been a major drag to the growth and development of the economy and, by implication, the capital market.
“The new policy on OMO is making investment in the market more attractive but the question is sustainability. We operate in an unpredictable environment where there can be policy somersault at the least expected time.”
Analysts had also expressed fears that a devaluation of the naira was still in the offing in view of the current rising inflation rate in Nigeria.
The CBN Governor, Mr Godwin Emefiele, had openly denied plans to devalue the naira but tactically maintained that this could be an option if the price of crude oil dropped between $50 and $45 per barrel.
He also posited that naira devaluation might be the last option if the external reserve shrank between $30bn and $25bn respectively.
The Monetary Policy Committee on Friday increased the Cash Reserve Ratio by 500 basis points from 22.5 per cent to 27.5 per cent to hedge against upsurge in inflation rate, which was at 11.98 per cent as of December 2019.
Ezeagu said the OMO policy did not come from the blues but was part of the CBN’s financial engineering tactics to ensure that the DMBs channelled credit to the real sector to reduce crowding-out of the private sector in the area of credit.
He said, “Banks should lend money to the real sector to enhance economic growth and development. With a real Gross Domestic Product growth at 2.10, 2.12 and 2.38 per cent in Q1, Q2 and Q3 2019 and a population growth 2.6 per cent, Nigeria’s economy is struggling to find its bearing.”
Ezeagu stated that the sluggish economic growth was further compounded by the debt burden, infrastructure deficit and acute security, which was dictating the tune for the capital market.