he cash that was pumped into the economy is likely to have a multiplier effect because of the reduction in banks’ liquidity ratio (from 30% to 25%), cash reserve ratio (from 2% to 1%) and monetary policy rate (from 9.75% to 8%). Those three factors by themselves were not adequate enough to make the money market liquid but they are likely to significantly boost the effect of the first round of money to hit the system.

The banking industry will absorb the money as they are in the first line to take advantage of this position in the short term before it trickles down into the general economy. The effect of this is that there will be lower cost of capital for companies to run their businesses more effectively in the medium term and there will be a boost in economic activity in the medium term. This is likely to increase disposable income of the average Nigerian investor both directly and indirectly and they will have enough money to invest in the stock market.

The NSE Index has traded relatively flat over the past two months and investors are beginning to feel more confident that the market may just have hit the bottom. This, coupled with the extra disposable income, is likely to increase the investor risk appetite in the medium term as money market rates fall and become less attractive, given the incredible valuations of major stocks in the exchange.

The headline inflation rate is currently 14.60% but discounting food inflation brings the core inflation down to about 7.20%. This is quite low given the fact that Nigeria is an emerging economy and is expected to have a relatively fast growth rate with attendant high inflation rates. I expect the loosening liquidity to push the inflation rates up but not beyond controllable levels.

With the new events in the economy a smart investor will take positions in selected blue chip stocks in the present clime in order to reap bountifully not in the long term but in the short to medium term.

Finally, there is hope in sight.