Fixed Income Q3 2015: Better days some way off

Tightening to come in the US this year

Monetary trends in the developed economies are mixed. The Fed is ready to hike on domestic fundamentals but would hold off in the event of sustained global market turbulence originating in China or elsewhere. Any central bank’s focus is firstly its domestic economy, and its skill set requires detached analysis of the domestic economy and all financial markets. We see the hike this month, failing which December.

A third devaluation by year-end

We see another devaluation this year, with an end-year interbank rate of N215 per US dollar. The CBN doubtless has more administrative measures to deploy but will struggle to hold the line in our view in the face of tightening in the US, oil market weakness and pressure from the parallel market.

A policy rate hike also on its way

In an attempt to hold the line and in response to headline inflation above the target range, we see a policy rate hike of 100bps from the MPC later this month. The exchange rate is the largest input into inflation, and we forecast the headline rate at 10.5% at end-2016.


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