Analysts and investors have expressed divergent opinions on the latest intervention in the market by the Central Bank of Nigeria (CBN), which penultimate week, weighed in with a N1.05 trillion lifeline to drive liquidity in the capital market in particular and the nation's economy in general.
At the end of a special meeting of the Monetary Policy Committee (MPC), CBN governor, Professor Chukwuma Soludo, had announced a reduction in the bank's Monetary Policy Rate (the interest rate at which it lends to commercial banks) by 50 basis points from 10.25 to 9.75 percent; a reduction in the Minimum Liquidity Ratio (MLR) from 40 percent to 30 percent and the Cash Reserve Ratio (CRR) from 4 percent to 2 percent, all of which translate into the injection of N1.05 trillion into the financial system.
Soludo had also said that CBN would now buy and sell securities to commercial banks, while extending lending opportunities, all in a bid to boost liquidity in both the capital market and the Nigerian economy.
Whereas some see the intervention by the apex bank as apt and timely, others have expressed misgivings as to its efficacy.
According to Sunny Nwosu, President, Independent Shareholders Association of Nigeria, CBN's intervention does not square up to the degree of crisis that has beset the stock market in recent times.
“I strongly believe that there is hope for the Nigerian capital market, but I don't believe that the measures adopted by CBN will make any major impact. I think the issue is not about fresh funds, it is rather about investors' confidence that has been eroded and the resultant glut in the market. As soon as the glut starts vanishing (and that is going to be a neutral, gradual process), the market will experience a lasting rebound,” Nwosu said.
He urged investors to take advantage of the lull in the market and the concomitant low prices of stocks to shore up their investment portfolio and drastically minimise the grim effect of the protracted bearish run.
Mr. Lukman Ndanusa, a Lagos-based stock market analyst, differs with Nwosu on the strength of CBN's intervention. In his view, it is interesting how CBN that used to mop up funds in circulation through such financial tools as treasury bills and bonds has now instituted a machinery to ensure that there is more fund in circulation to the tune of N1.05 trillion.
“This will assuredly rub off positively on the capital market,” said Ndanusa. “What CBN's move implies is that over time, the interest rates paid by banks on cash deposits will crash and it is common knowledge that the capital market and the money market can hardly be down at the same time. So, what CBN is doing is to make the money market relatively unattractive to investors so that the capital market could come up. But this might not be immediate.”
As for Mr. Adekunle Teriba, another analyst, he holds the view that the liquidity-boosting framework instituted by CBN has bright prospects as opposed to the earlier proposed stabilisation fund, which has been stayed.
“Reducing the interest rates ostentatiously offered by banks is far better than injecting stabilisation fund into the market in the form of raw cash,” he said. “Learning from what happened in Indonesia and Singapore , one would advise absolutely against bringing in such fund, because the capital markets in these countries are still suffering the impact of the intervention by their respective governments.”
Speaking further, Teriba explained that in the absence of the measures put in place by CBN, a large chunk of any stabilisation fund that is released would find its way into the money market in the light of hitherto inviting interest rates and the prospect of secure investment, thus defeating the underlying aim of the fund.
“Even if such fund is wholly channeled into the capital market, it would only jerk up market indices in the short run and eventually leave the market in a more deplorable state when it is siphoned out by any means,” he stated.
CBN's intervention and other measures earlier taken by the federal government notwithstanding, the bear has maintained its grip on the floor of the Nigerian Stock Exchange, with the market shedding N32 billion on the first day of trading last week Monday.
At the end of trading, the market capitalisation tumbled down to N9.993 trillion, against N10.025 trillion recorded at the close of activities on the preceding Friday. The All-share-index also dropped by 122.95 to close at 47.194.99 points in contrast to Friday's points of 47.317.94, suggesting that it is not yet uhuru for the nation's capital market.
In the USA, where the stock meltdown is equally a matter of deep concern, the government's planned $700 billion bailout is being dogged by skepticism and criticism after risk-taking on Wall Street brought the country's financial system to its knees.
With Congress about to adjourn and with elections in less than six weeks, lawmakers were wrestling with what the George Bush administration calls a must-pass bill to rescue the U.S. financial sector with a $700b bailout.
Congressional Democrats were reported to be reluctant to support the bill, the end result of which they suspect is designed to bolster the chances of Republicans in the November presidential ballot.
The proposed bailout bill would provide $700b to buy distressed assets from banks and investment firms. In addition to the so-called toxic debt, the Treasury would get warrants that would give the federal government a potential ownership stake in such firms if they take part in the bailout.
Joining in the debate over the proposed bailout, Democratic presidential candidate, Barack Obama, on Tuesday called on President Bush to be more flexible about changes to the proposal and warned Wall Street CEOs against being selfish about the terms of the bailout.
“Yesterday, the President said that Congress should pass this proposal to ease the crisis on Wall Street without significant changes or improvements,” Senator Obama told reporters, arguing that everyone has a stake in solving the crisis to protect the jobs and the life savings of millions.
In a roughly 20-minute press conference, the Democratic flag bearer said that power over $700b in taxpayer money should not be placed in the hands of one person without adequate oversight. He suggested that an independent, bipartisan board be set up to “provide oversight and accountability at every step of the way.”
Meanwhile, in a private initiative aimed to tame the Wall Street crisis, Warren E. Buffett, the world's most famous stock investor and one of the world's richest men, announced on Tuesday that he would invest $5 billion in Goldman Sachs, the embattled Wall Street titan, in a move that could bolster confidence in both the U.S. and global financial markets.
Until now, Mr. Buffett, who has navigated the stock market with legendary prowess, had largely refrained from investing in the stricken financial industry, saying repeatedly that things could get worse.
Thousands of people on and off Wall Street follow Mr. Buffett's moves, so his decision to invest in Goldman immediately heartened investors. After falling nearly 1.6 percent during the day, the Standard & Poor's 500-stock index erased half its loss in after-hours trading Tuesday evening on news of the investment.
Bright Nwogwugwu.