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Breakfast Report - 02 August 2021

In its fourth meeting of the year, the Monetary Policy Committee (MPC) hung all monetary policy tools, leaving benchmark rates unchanged. Amid optimism over growth-inflation dynamics within the economy, the Bank resolved to sustain the deployment of administrative tools to influence macroeconomic indicators. A key highlight of the meeting was the discontinuation of FX sales to Bureau de Change (BDC) operators. As already seen, this could accentuate pressures in the parallel market and make imports more expensive. As a result, inflationary torches could be reignited in the short term unless banks step in to fill the demand in the retail FX segment. However, this could spur higher domestic prices for items under the FX restriction list, especially the inelastic ones. Over the medium term, this could encourage local production and import substitution. Ultimately, we see this as part of the FX unification efforts of the apex bank. In its fourth meeting of the year, the Monetary Policy Committee (MPC) hung all monetary policy tools, leaving benchmark rates unchanged. Amid optimism over growth-inflation dynamics within the economy, the Bank resolved to sustain the deployment of administrative tools to influence macroeconomic indicators. A key highlight of the meeting was the discontinuation of FX sales to Bureau de Change (BDC) operators. As already seen, this could accentuate pressures in the parallel market and make imports more expensive. As a result, inflationary torches could be reignited in the short term unless banks step in to fill the demand in the retail FX segment. However, this could spur higher domestic prices for items under the FX restriction list, especially the inelastic ones. Over the medium term, this could encourage local production and import substitution. Ultimately, we see this as part of the FX unification efforts of the apex bank.

Equity: The market saw an improvement in activity levels on Friday due to large crosses in names such as MTNN and GTCO.  This is expected to filter into this week’s trading, as investors continue to take positions ahead of the earnings releases of some of the Tier-1 banks in anticipation of their interim dividend announcements. Stock watch: In Friday’s session, DANGSUGAR was a top gainer, advancing 1.65% to close at ₦18.5. The stock has currently returned 5.11% YTD.

Fixed Income: This week, we expect trading in the market to remain active, with the T-bills market most likely to continue on a bullish run as investors take cues from the most recent PMA results. Meanwhile, in the absence of any significant catalyst in the macro space, we foresee a trading pattern similar to last week’s playing out in the bonds market.