Sigma Pension Predicts Higher Interest Rate, Economic Growth

Sigma Pensions Limited has predicted that the first half of the year will record increased economic activities, even as it predicted an increase in interest rate. The firm stated this in its 2020 economic report titled: ‘a year of promise and opportunity, but difficult times first.”

The report stated that the investment landscape in 2020 would be shaped by largely favourable global economic environment and relaxed global monetary policy, a supportive oil price picture in the first half of the year and a greater impetus for implementation of capital budget as fiscal revenues improve.

On the capital markets it predicted low interest rates for now, cheap valuations supportive of equities. It stated: “The ban on local investor participation in the CBN’s open market operations (OMO) has resulted in a strong decline in interest rates as demand for instruments from maturing OMO bills outpaces the supply from Nigerian treasury bills, FGN bonds and corporate bonds. “We expect this trend to continue over the near term as the expensive cost of these OMO bills have become burdensome to CBN’s balance sheet. However, our view regarding higher inflation and pass-through impact of current account weakness to FX reserves imply that CBN may at some point need to curtail excess naira liquidity via higher interest rates in a bid to curb USD demand.”

“The combination of a low interest rate profile at the start of the year, cheap equity valuations and double-digit dividend yields in some sectors presents scope for positive sentiments towards Nigerian stocks.”

It further predicted a more upbeat global economy as trade wars simmers and higher oil prices in near term. It states: “In a turnaround from the weak patch over 2019, global economic performance looks upbeat over 2020 driven by optimism about trade negotiations between the US & China. Elsewhere, we see an increased likelihood of an orderly resolution of Brexit though we highlight that the lead-up to the US presidential elections in November could present sizable uncertainty to global financial markets. “That said, we think any concerns about political risk spillovers are likely to be tempered by further monetary policy accommodation by leading central banks. In all, the IMF expects the global economy to expand by 3.6 per cent, up from 3.5 per cent in 2019.