The continuing need for fiscal and monetary measures to help Nigeria’s economy cope with the impact of the coronavirus (Covid-19) pandemic likely means that a low interest rates regime will persist in the country in the second half of this year, Cowry Asset Management Limited has said.
The firm stated this in a report entitled, “H1 2020 Review & Expectations & Investment Strategies in H2 2020,” obtained by New Telegraph yesterday.
Given that it is expecting the current low interest rates regime to persist, the firm says it is forecasting an increase in government and corporate bond issuances in H2’2020.
The financial services firm said: “We expect the monetary authority to intensify its expansionary policies, in alignment with the fiscal authority’s economic growth objective, given the anticipated negative effect of COVID-19 on the country’s gross production output.
“In addition to the need to boost consumer spending through different intervention programs and palliatives offered to companies and individuals by CBN and FG, we envisage sustained conditions that will boost liquidity in the financial system. Hence, we expect interest rates to remain suppressed in H2 2020.”
Continuing, it stated: “Given the anticipated sustained low interest rates regime, we expect to see increasing government and corporate bonds issuances in H2 2020, even as cheaper interest rates provide opportunities for refinancing.”
Citing the government’s revised borrowing plan for 2020, which shows that it is planning to issue at least $5.5 billion foreign and $6.1 billion domestic borrowings , Cowry Asset Management further stated:
“We expect FG to issue more short-term securities as the short-term debt to total debt mix of 19% was below 25% target as at FY 2019. Despite expected relatively high FG borrowings, we feel T-bills and Bonds rates will still remain low as government exploits the increased demand for fixed securities, amid preference for capital preservation by investors.
“Hence, we anticipate more corporates to take advantage of the relatively low yield environment by issuing corporate bonds, especially short-term commercial papers as well as long term domestic debt instruments, in order to refinance existing debts more cheaply and to finance new projects,” it added.
However, the firm said it is expecting the Central Bank of Nigeria (CBN) to continue to perform Open Market Operations (OMO) auctions at attractive interest rates, “in order to retain foreign portfolio investors, and hence, ensure exchange rate stability in H2 2020.”