Speaking to our correspondent, the Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, said that move will stem current investment in dollars against the naira by Nigerians.
According to him, Nigerians are moving their investments from local securities because of low Return on Investment (RoI), compared to what they get on foreign securities.
“The return on investment in local currency is currently lower compared to the return on investment in foreign currency. For instance, if we are investing in euro bond, the yields are higher and with the continuous devaluation of the currency, we see that the return is high and even now is better because during the immediate past Central Bank of Nigeria (CBN) administration interest rate on treasury security was very low.
“Another way to look at it is that the return on government security is less than 15 percent, that is negative return for people investing in naira assets. Definitely, investors will be moving to foreign securities. What can be done is to raise rate for the naira asset because since 2014 when naira started falling, there are so many measure such as ban and unbanned of some items and it hasn’t worked.
“It’s difficult to win against the market because if you look at Ghana you will see that they raised rate when they are having issues in 2022 and people were moving money into dollar and return on Treasury bills increased significantly it got to over 30 percent.”
Olubunmi, a former banker, stated that there was a need for the government to increase the rate in naira assets to stem people from diverting their investments into foreign currency.
“In 2024, we anticipate an increase in interest for government securities. The interest rate in naira assets will increase as a way of steming the tide of people moving their investments into FX. Again, the main challenge in Nigeria is supply because the inflow are coming in trickles so it will be difficult for all the issues to be addressed at once but we anticipate significant reduction and settlement of outstanding obligations with the CBN so we believe that there will be some level of sanity and reprieve in the FX market this year.
“Lastly, the solution is a two thong approach such as increasing the rate of naira assets and also we will need to increase inflow into the market,” he stated.
On his part, Chief Consultant of B. Adedipe Associates Ltd, Dr ‘Biodun Adedipe, said that economic growth and development rely heavily on investment, which is being hindered by the current conditions.
Adedipe, however, advised the Monetary Policy Committee (MPC) of the CBN to raise the Monetary Policy Rate (MPR) in order to increase interest rate and encourage investment.
He said, “inflation rate latest figure for December 28. 92 per cent, Monetary Policy Rate, 18. 75 per cent, that’s a real differential which when interpreted means negative interest rate.
“So ordinarily for any central or reserved bank in the world, they want to reduce that differential and move it more to a positive real interest rate in which case, that is what will incentivize investment. That is a typical approach to orthodoxy in monetary policy.
“So, if we look at that alone, then we should expect that monetary policy rate will be raised by the monetary policy committee which of course we have now a tentative agenda of its meeting commencing February this year.’’
