In the aftermath of the 299th Monetary Policy Committee (MPC) Meeting, which also marked the first gathering of the year 2025, the Central Bank of Nigeria (CBN) has opted to maintain the Monetary Policy Rate (MPR) at 27.50%, a decision that reflects the cautious approach adopted by the apex bank following an aggressive tightening cycle in 2024. During the previous year, the MPC had increased the MPR by a total of 875 basis points, a move aimed at addressing inflationary pressures and stabilizing the economy. This decision to hold the MPR comes alongside the retention of other key policy measures, including the Cash Reserve Ratio (CRR), which remains at 50% for Deposit Money Banks (DMBs) and 16% for Merchant Banks, as well as the Asymmetric Corridor at +500/-100 basis points around the MPR. The Liquidity Ratio also remains unchanged at 30%.
With over ₦1 trillion inflows from Open Market Operations (OMOs) repayments last week and coupon payments of more than ₦289 billion for the February 2031 and February 2024 bonds, market participants are largely optimistic that these repayments will significantly boost system liquidity in the short term. The large-scale repayments are expected to inject much-needed liquidity into the financial system, potentially easing the tightness that has characterized the market in recent weeks.
The Naira, in the week under review, fluctuated between a high of $/₦1,515.00 on Monday and Tuesday and a low of $/₦1,490.00 on Thursday, closing at $/₦1,502.50 on Friday. The money market sustained a liquidity deficit of over ₦722 billion, and in line with this, short-term borrowing rates saw a slight uptick, with the O/N rate rising to 32.83% and OPR declining slightly to 32.33%, up from the previous week’s 32.80% and down from 32.45%, respectively.
The timing of decisions at the MPC coincides with the rebasing of Nigeria’s inflation figures for January 2025, which saw the inflation rate decline significantly to 24.48% from the 34.80% recorded in December 2024. While the financial markets have reacted positively, can this be considered good news for the Nigerian economy? We note that the Federal Government has recently increased the budget by ₦4trillion. The consensus is that while inflation remains high, there are signs of stabilization. Market observers will also be checking in the coming months whether inflation rates will remain at new levels or if they will increase. As such, many market observers believe that the MPC’s decision to keep the MPR unchanged is a measured approach. Market observers believe that it would be premature to implement further rate hikes at this juncture, especially as the economy remains in a phase of adjustment. Conversely, there appears to be a reluctance to cut rates too soon, as this could undermine the progress made in curbing inflation and ensuring economic stability.
Looking ahead to the next MPC meeting scheduled for May 19th and 20th, 2025, it will likely serve as a critical juncture for assessing the trajectory of Nigeria’s economic recovery. With several months between, the MPC will have ample time to monitor key indicators such as inflation, economic growth, fiscal discipline, and liquidity conditions. Analysts expect that there will be a close evaluation of the impact of previous rate hikes, as well as the broader global and domestic economic environment before any further adjustments are made. The outcome of these deliberations could have significant implications for the direction of monetary policy in the coming months.
The most recent Nigerian Treasury Bills (NTBs) auction for February took a surprising turn, particularly with the 91-day and 182-day tenors, which saw a shift from stop rates that held steady for at least the past six auctions at 18.00% and 18.50%, respectively. Currently, the 91-day tenor experienced a significant drop of 100 basis points, closing at 17.00%. Similarly, the 182-day tenor saw a modest decline of 50 basis points, settling at 18.00%. This unexpected movement has raised several eyebrows in the market, with analysts pointing to the possible shifts in investor sentiment and broader economic conditions that may have driven the changes.
While the declines in the shorter tenors were noteworthy, it was the performance of the 364-day tenor that garnered the most attention. At the previous auction, the 364-day tenor closed at a relatively high rate of 20.32%. However, in the most recent auction, this longer-dated paper witnessed a sharp decline of 189 basis points, bringing its stop rate down to 18.43%. Some traders inquired why they would go for a one-year bill at that rate when there was just a little difference of 43 basis points when compared to the 182-day paper.
In a short while, the secondary market reacted to this with offers and bids seen at around the 17% levels. The CBN had set an offer of ₦700 billion, and at the close of the auction, it successfully sold over ₦774 billion in NTBs. All eyes will be on the next NTBs auction and subsequent monetary policy decisions, which will provide further clues as to whether these trends are a temporary adjustment or the start of a more sustained shift in the market.
AUCTION DATE | 19-02-2025 | 19-02-2025 | 19-02-2025 |
ALLOTMENT DATE | 20-02-2025 | 20-02-2025 | 20-02-2025 |
MATURITY DATE | 22-05-2025 | 21-08-2025 | 19-02-2026 |
TENOR | 91-DAY | 182-DAY | 364-DAY |
OFFER (₦) | 80,000,000,000 | 120,000,000,000 | 500,000,000,000 |
SUBSCRIPTION (₦) | 62,140,666,000 | 49,877,980,000 | 2,296,333,482,000 |
ALLOTMENT (₦) | 34,766,762,000 | 34,984,179,000 | 704,377,021,000 |
STOP RATES (%) | 17.0000 | 18.0000 | 18.4300 |
PREVIOUS STOP RATES (%) | 18.0000 | 18.5000 | 20.3200 |
The release of the rebased inflation figure for January 2025, with 2024 as the new base year, has certainly stirred mixed reactions across the Nigerian financial markets. The inflation rate was reported at 24.48% in January, a significant ‘drop’ from 34.80% in December 2024. On the surface, this reduction may seem like a cause for optimism, offering a sense of relief to some market participants and economic observers. However, many remain concerned, questioning the true implications of this rebased figure for the economy and the financial markets.
Concerns have been raised about whether the figures truly signal a meaningful economic improvement or merely reflect statistical adjustments following the rebasing process. The key question remains how sustainable this reduction will be and whether it truly marks the beginning of a downward trend in inflation. Despite these reservations, the secondary market appears to have reacted with yields going below the auction levels. The outcome of the recent NTBs auction, along with movements in the bond market, suggest that it is still too early to draw definitive conclusions about the long-term effects.
While the CBN has indicated that it remains vigilant in its efforts to combat inflation, the outlook for future interest rate hikes or cuts will be largely determined in the coming months. Nevertheless, caution is still warranted. The overall health of the economy, the pace of economic recovery, and the sustainability of the inflation drop will remain central to the markets’ ongoing reactions.
As the February FGN bond auction comes up today, the market is brimming with a blend of anticipation and uncertainty following the bond circular that outlined the specific instruments on offer. This auction will feature two tenors—the April 2029 and February 2031 bonds—with the exception of the recently issued 10-year bond from last month.
In response to the bond circular, the secondary market has seen notable movements, particularly in the 2035 bond. The bond, which opened at 22.60%, has seen its trade down to around 18%. This significant shift in yield is indicative of market participants adjusting their expectations ahead of the auction, with some participants clearly seeking to cover their positions before the actual auction results are known.
On the minds of most market participants is whether the rates for these bonds will continue to fall or whether the auction will provide some reprieve, possibly leading to a stabilization of yields, as the secondary market seems to have been under pressure after the circular was released.
Expectations are high with a combined offer of ₦350 billion for the two bonds—₦200 billion for the 2029 bond and ₦150 billion for the 2031 bond. A strong demand could further push down yields, whereas a lower demand could make yields stabilize or even tick upwards slightly.
As always, the market is in an anticipatory mode for the decision of the DMO, with both institutional and retail investors closely monitoring the outcome of the auction, with fingers crossed for a favourable outcome.
In addition to the OMO and coupons from the previous week, inflows are expected to the tune of over a trillion in OMO repayments and about ₦95 billion in coupon payments from the February 2028 bond in the final week of February. The additional liquidity injection is seen as another positive factor that could contribute to further market stability. Analysts believe that these significant cash flows will help to cushion the impact of any tightening measures that have been implemented recently by the CBN and provide a level of comfort to market participants, especially as concerns around liquidity risk have been heightened. Thus, while the immediate boost of liquidity is welcome, the true impact will be determined by the interplay between these injections and the overall policy direction of the CBN.
Regarding exchange rates, considering the recent developments, it is likely we feel some impact from the current trends, though the outlook remains hazy.
In the near term, the FX market will likely continue to be shaped by a mix of internal policy actions, global economic conditions, and investor sentiment. The Naira could experience some short-term relief due to the increased liquidity. However, unless there is a sustained increase in FX inflows—particularly from non-oil sources such as remittances or foreign direct investments—the Naira could face continued challenges. Ultimately, the outlook for the Naira remains highly dependent on both domestic economic reforms and external factors.
