A number of fresh intervention funds might be introduced to stimulate economic activities in the non oil sector. Agriculture, solid minerals and SMEs remain key focal points. Pressure on the Naira is not expected to abate. The CBN will continue a “demand focused” management strategy until reserves improves. A 10%—15% devaluation appear inevitable. Inflation should inch towards double digit in 2016. Our best case forecast gave a 10% average; driven primarily by FX scarcity and increased money supply. All Eyes on FX Policy The naira came under intense pressure in 2015 as the CBN struggle to cope with an unprecedented slump in dollar inflows due to declining crude oil prices. While rates remained N197—N198 at the official market, the parallel market experienced greater volatility, trading as high as N260 per Dollar in December 2015. Year 2016 will likely be another challenging year for the Naira as oil price is forecast to slump further. Nevertheless, we expect more stability and precision in CBN’s FX management policies. Lower Interest Rates In a bid to give the economy some monetary stimulus and stimulate growth, the CBN is expected to keep interest rate low in 2016. The 11% Monetary Policy Rate (MPR) is unlikely to go higher, while the Cash Reserve Ratio (CRR) might witness another downward review. On the flip side, the economy will have to invariably cope with a double digit inflation and a lower inflow of Foreign Portfolio Investments with attendant consequences for real returns and capital market outlook respectively. More Real Sector Intervention Funds In addition to the new Anchor Borrowers programme, the CBN will most likely float more intervention funds for solid minerals, agriculture and SMEs in a bid to ensure that private sector is not crowded out of the debt market. Source: CBN 0 10 20 30 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Monetary Policy Rate Cash Reserve Ratio 17.50
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