June 4, 2014 by Simon Ejembi/Punch

Capital market operators have said they expect the Central Bank of Nigeria to work towards keeping the inflation and interest rate in check as that will encourage the growth of the market.

Operators, who spoke to our correspondent, said they were also keenly waiting for Mr. Godwin Emefiele, who resumed office as the CBN governor on Tuesday, to disclose his policy thrust.

One of the operators, the Chief Executive Officer, Lambert Trust and Investment Limited, Mr. David Adonri, said, “The major task that confronts him is achieving single-digit lending rate and achieving price stability; that is non-inflationary growth of the productive economy.”

According to him, when interest rate is low, financial assets flow into the equities market.

He added, “Also, when interest rate is low the companies that operate in the economy will operate more profitably and will be more competitive. Since a lot of these companies are listed on the stock exchange it means that investors will have better distributions from those companies.

“And when there is price stability, that is, the inflation rate is kept at the lower limits of single digit, it means that the foreign exchange market can be better stabilised and when the foreign exchange market is stable it will encourage foreign investors to invest in the capital market. So, the multiplier effect are quite material for the capital market and for the economy at large.”

The Managing Director, Compass Investment and Securities Limited, Mr. Emeka Madubike, said, “We are expecting that he will just stick to the duties as assigned to the central bank governor by the Central Bank Act of 2007. If he does that and stays as far away as possible from politics and controversies, we will have more stability in the market and less uncertainty and the economy will be better for it.”

Madubuike, who is also the President, Association of Stockbroking Houses of Nigeria, stressed that there was also the need for the CBN governor to take the capital market into account when formulating policies.

He said, “My take, more in the general terms, is that there is the need for the central bank governor to remember that there is a capital market that is the flipside of the money market; and so, policies need to take into account the fact that there is a capital market that exists in the country because, for a long time, monetary policies do not take the capital market into account.”

He explained that this was probably why market operators are concerned about things like interest rates because “if those rates are economy-friendly, they will encourage investment.”

Also, commenting on the resumption of the CBN governor, the Chief Executive Officer, Trust Yield Securities Limited, Alhaji Ola Yussuf, said operators were keenly watching Emefiele to disclose his policy thrust and whether he would continue along that path his predecessor, Mallam Lamido Sanusi, took. Particularly, Yussuf said his policy on naira exchange, the external reserves and inflation rate were vital.

Yussuf said, “We need to know from him what his policies are. Is he going to continue along the same line as his predecessor? Is he going to continue to defend the naira or is he going to allow the naira to float? In defending the naira, Sanusi hiked up the interest rate on the treasury bills. Is he going to continue with that? On inflation, what is going to be his policy? Is he going to continue to ensure that inflation is brought down even lower?”

For example, Yussuf explained that one of the challenges the capital market was facing was the high interest rate on T-bills.

He said, “As an investor if you put your money in government Treasury Bills and that is giving you 15 per cent and you know that the 15 per cent is with a guaranty then the attractiveness of putting your money in equities is reduced because you are not sure that if you put your money in equity it will give you 15 per cent return.”

He said as a result, the reduction of interest on T-bills by the CBN to about nine per cent would have tremendous effect on the capital market as it would attract investment. Likewise, an increase in the interest on T-bills would have a negative effect on the market.