FBN Capital’s 2015 Outlook report sees policymakers soon back in the front row

FBN Capital Limited, the Investment Banking and Asset Management subsidiary of FBN Holdings in Nigeria has released its 2015 Nigeria Outlook. The report takes a look at the elections, oil prices, the financial markets, and the prevailing exchange rate to assess the potential effects on the economy and provide likely projections for the year ahead.

According to the Analysts, there is expected to be a relief in the markets on the conclusion of the country’s current electoral cycle on the 14th February 2015, which will enable policymakers return to work in the new administration (of whichever party). “We expect the deregulation of petrol prices because of the opportunity presented by the collapse in the international oil price. Nigeria’s straitened fiscal and financial circumstances could provide the impetus for the FGN to push ahead with a number of stalled reforms.”

The report goes further to state that in spite of the turmoil in the economy there is still room for respectable growth, with a scaled-down forecast of 5.3% this year. “Nigeria has a non-oil economy, albeit one overly dependent on oil for budget receipts and FX inflows. Robust private consumption and investment remain the drivers of the non-oil economy. We do not hold out much hope for an oil sector revival”, the Analysts noted.

On inflation, the fact that the explicit targets for headline inflation were met in both 2013 and 2014 was highlighted, and it was observed that the achievement barely registered in financial markets though being set to be repeated in 2015 as well. The Analysts predict a policy rate increase from the MPC, another devaluation, and probably some more administrative measures leading to an end-year interbank rate of N200 per US dollar, as the gap between FX demand and supply is considered too large for the CBN to maintain exchange-rate stability.

The equities and fixed income markets were given a neutral projection. Despite last year’s -16.1% sell-off in the All Share Index (ASI), Analysts at FBN Capital expect the index to be down -1% in 2015, implying upside potential of 15% from current levels. For fixed income, they stated “we see a gentle widening of FGN bond yields amid domestic fiscal strains and the global flight to quality, and favour NTBs for short-term trading plays”.

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