A Review of the Nigerian Energy Industry

Financial market update

1 December 2011, Sweetcrude, Lagos – Local and international financial market update.

. USA – The US FED led global effort to reduce borrowing costs shows the power central banks have to jolt markets. The FED and five other central banks cut the cost of emergency dollar loans to banks outside of the US. What needs to be seen if yesterdays move will address the causes of the current crisis as opposed to addressing the consequences of the crisis.

· INDIA – Food inflation fell sharply to 8% for week ended 19 November from 9.01% in the previous week. The Government has also allocated 19.07 lakh tonnes of sugar for sale in the open market and ration shops during December

· CHINA – The Peoples Bank of China cut banks reserve requirements yesterday for the first time since 2008, while a purchasing managers index signalled the first Chinese manufacturing contraction since 2009

· The CBN Governor has said a low interest rate regime for the country will be difficult to realise at the moment. However, his view is contrary to the hint dropped on Monday by the Minister of Finance, Dr. Ngozi Okonjo-Iweala, that the FG might force down the lending rate in order to stimulate borrowing by the real sector of the economy. Sanusi noted that low interest rates would only work in Nigeria when the inflationary rate dropped to the barest minimum. [Punch]

· “Bonds – Quiet market on Wednesday with only a handful of trades going through. Yields inched up only very slightly across the curve. With the OMO auctions closing around the 16.00% levels we might see some sell off on the shorter end of the curve especially on the 2013 & 14s.

· Bills – Another bearish session on Wednesday especially as news of the N100bio OMO offering of 176 and 281 day bills filtered into the market. Rates went up an average 30 bps on the longer dated maturities. With the OMO auctions closing at 16.00% for 176days and 16.40% for 281 days we will likely see some more selling in the market on Thursday as the CBN tries to mop up liquidity.

· Money Market – With the market opening short about N160bio OBB traded up to close around 15.50% while unsecured rates went up to 19.00% but averaged around 17.00%. The monthly statutory allocation has been approved and we will expect the flows into the system before the end of the week so liquidity should ease a

little. ”

· NGN: CBN offered and sold $200mio, total demand was $200mio, lowest intervention rate was 157.8731 [inc. 1% commission] 95 points appreciation against the previous auction.


Hi            Low          Close          Prev.Close

USD/NGN    161.57/67     160.68/78      161.20/30        161.05/15

NIBOR (%)                              LIBOR (%)
O/N                17.3330            USD 1 month          0.2714
7 Day              17.5830            USD 2 month         0.3876
30 Day           17.8330             USD 3 month         0.5289
60 Day           18.0830             USD 6 month         0.7483
90 Day           18.3330              USD 12 month        1.0711
Y/Y Consumer Inflation Oct 2011 :                            10.50%
FX Reserves: 24 November 2011                (USD bn) 33.06
MPR                                                                                  12.00%
Source: FMD and CBN


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