President Donald Trump’s policies continue to cast a long shadow over the direction of global financial markets, including the prevailing trends in interest rates. His approach, particularly in terms of trade tariffs and foreign policy, has had a notable impact on market dynamics, not just in the U.S., but across the globe.
The recent crash in oil prices can, to a large extent, be attributed to the ripple effects of these tariffs. For oil, which is so heavily influenced by global supply and demand dynamics, such uncertainty leads to volatility. Moreover, with Trump’s stance on energy independence in the U.S., and a focus on reducing reliance on foreign oil, U.S. shale production has seen an uptick, which adds further supply pressure, contributing to the overall downward trend in oil prices.
The Nigerian financial markets appear to have been walking a fine line since the Monetary Policy Committee (MPC) last convened in February. At its last meeting, the MPC decided to keep all its key parameters unchanged. This cautious decision made on February 19th and 20th, 2025 left many market participants guessing, with their gazes firmly fixed on the forthcoming MPC meetings slated for May 19th and 20th, 2025. As the financial community holds its breath, the question remains: What direction shall the committee take at its meeting scheduled for next month? Will the MPR be increased, maintained, or even reduced?
In a move that has raised eyebrows and given rise to significant concern across Nigerian financial markets, the United States has extended a hefty 14% tariff on Nigeria’s exports, adding another layer of complexity to the already turbulent economic environment. This development, stemming from the Trump administration’s ongoing push to revise trade policies, places a heavy burden on Nigerian businesses and the broader economy. As tariffs were previously imposed on certain countries, this new escalation, which targets a number of African nations, including Nigeria, speaks to a sharp shift in the global trading outlook.
There was a surplus of system liquidity throughout the week, unlike in previous weeks, when huge deficits were recorded. This liquidity boost was as a result of the inflows that were recorded towards the end of last month.
In the week under review, the Naira fluctuated between a high of $/₦1,625.00 on Friday and a low of $/₦1,519.03 on the same day, closing at $/₦1,600.00 on Friday. The money market saw a liquidity surplus of ₦969.64 billion. In line with this, short-term borrowing rates saw a decline, with the O/N rate dropping to 26.86% from the previous week’s 26.96%, while the OPR maintained its level at 26.50% from the previous week.
Nigeria’s economy, like many emerging markets, is in a complex and volatile state. With inflation gradually moderating and the lingering effects of the previous tightening cycle, there are fears that further rate hikes could stifle an already fragile recovery. On the other hand, holding the MPR steady or even reducing it might risk worsening inflationary pressures, particularly those fuelled by both domestic and global factors.
The markets, therefore, are at a crucial juncture. The MPR is the primary tool the Central Bank of Nigeria (CBN) uses to influence inflation and economic activity. Though expected by some, a hike could send shockwaves through the economy. The cost of borrowing would increase, impacting consumer spending, investment decisions, and economic growth. Moreover, the impact would likely be felt acutely in the private sector, where businesses are already struggling with high operational costs.
In the middle of these, the question is not just about what the MPC will do, but how the markets will react. Investors will be watching the CBN’s moves closely, as the direction taken will undoubtedly shape the performance of the relatively stabilized Naira, bond yields, equities, and even the broader macroeconomic environment. Any indication of a rate hike could trigger a flight to safer assets, while a dovish stance could fuel demand for riskier assets, including Nigerian equities, albeit cautiously.
Considering the immediate implications of the 14% tariff on Nigeria’s exports to the U.S., one can deduce that they are manifold, with potentially far-reaching effects across various sectors of the economy. Nigeria has long relied on the U.S. as a major trading partner, particularly for its oil, agricultural products, and commodities; the tariff essentially makes Nigerian goods more expensive for American consumers, potentially leading to a decline in demand for Nigerian goods. For industries such as agriculture and oil, which are crucial to Nigeria’s revenue generation, this tariff could have effects such as reducing foreign exchange inflows and placing additional pressure on the Naira.
The knock-on effects for the Nigerian financial markets could be severe. With reduced export revenues, the Central Bank of Nigeria (CBN) could face increased difficulty in further stabilizing the Naira and managing the country’s foreign exchange reserves. A weaker Naira, driven by falling export earnings, could result in higher import costs. This, in turn, could put additional strain on the CBN’s ability to stabilize the economy.
For local businesses, especially those involved in the export of goods, the tariff will likely translate into lower profitability, as they are forced to either absorb the increased costs or pass them on to consumers. For investors in Nigerian markets, this tariff represents another risk to the current state of the economy. Foreign investors, who are crucial to Nigeria’s equity and bond markets, may reassess their exposure to the country.
At the same time, the broader global context also plays a crucial role in how the market responds. As tensions rise in international trade, the global supply chain is increasingly disrupted, and the risk of retaliatory tariffs from other nations adds another layer of uncertainty. Countries across Africa may feel similarly disadvantaged, and regional trade agreements may become more critical in light of the shifting dynamics of U.S./Africa relations.
In this light, the Nigerian government and businesses will need to act swiftly to assess alternative markets and new trade partnerships to mitigate the potential damage of the tariff. This could involve capitalising on initiatives such as the African Continental Free Trade Area (AfCFTA), which offers the potential for greater intra-African trade.
The Nigerian Treasury Bills (T-Bills) market has witnessed a surge in activity recently, as market participants engage more with short-term instruments in anticipation of upcoming auction schedules. This uptick comes amidst the little activity in both the OMO and bond markets. The absence of a T-Bills auction last week indicated the expectation that the first auction for the month could take place this week.
Nigeria’s T-Bills market has historically been an avenue for investors seeking relatively safe, short-term returns. In recent times, the demand for T-Bills has been on the rise, partly driven by the current economic environment, where many investors appear more inclined towards short-term securities. Given the relatively lower risks associated with T-Bills compared to other instruments, many have flocked to them as a shield against the uncertain economic outlook.
As the market prepares for the first T-Bills auction for April, analysts closely monitor the direction of yields, particularly the interest rate at which they are issued.
The direction of yields could also be influenced by liquidity conditions in the money market and the broader global economic environment. With oil prices and foreign exchange fluctuations continuing to impact the local economy, investors will likely adjust their strategies based on how these external factors evolve. Where global market conditions continue to exert pressure on Nigeria’s economic fundamentals, the yield curve may steepen.
The recent announcement by the Central Bank of Nigeria (CBN) regarding the country’s latest net external reserves figures has been met with cautious optimism in the financial community. For many, the increase in Nigeria’s external reserves represents a commendable achievement, offering a degree of hope amid a challenging economy.
External reserves serve as a safeguard for the stability of the national currency, the Naira. With an uptick in net external reserves, the CBN now has more foreign currency at its disposal, which can be positioned to defend the Naira in times of pressure or volatility. Also, the boost in external reserves allows the CBN to intervene in the foreign exchange market to stabilise the Naira.
It is worth noting that a stronger reserve position helps boost Nigeria’s sovereign creditworthiness. Credit rating agencies closely monitor a country’s reserves to assess its ability to meet external debt obligations and manage foreign liabilities. The increased reserves act as a positive signal, potentially improving Nigeria’s credit rating and lowering the cost of borrowing in international capital markets.
The focus should also be on managing reserves efficiently and avoiding scenarios where the reserves are rapidly depleted. Therefore, the CBN’s strategy should include robust risk management measures to ensure that the reserves are adequate and protected against potential volatility in the global financial system.
To promote the development of Nigeria’s entrepreneurial ecosystem, Nigeria and Japan have come together to collaborate on a Naira-denominated venture capital fund to support the country’s growing startup sector. This partnership promises to create a dynamic bridge between Africa’s largest economy and one of the world’s most innovative and technologically advanced nations.
The venture capital fund, denominated in Naira, marks a significant shift from the typical foreign currency-based funds that have been more common in Nigeria’s investment pattern. By creating a fund in Naira, the collaboration provides a much-needed shield for local entrepreneurs from the risks associated with exchange rate fluctuations.
This partnership shows a growing recognition of the potential within Nigeria’s startup ecosystem. Nigeria has become a hotbed for innovation, particularly in the fintech, agriculture, technology, and renewable energy sectors. Startups in these industries constantly need capital to scale their operations, develop new products and enter new markets. The collaboration with Japan opens up an influx of much-needed funding and brings in Japanese expertise in areas such as technology, innovation, and business management.
President Bola Tinubu recently signed the Investments and Securities Act (ISA) 2025 into law in order to enhance the integrity and efficiency of Nigeria’s capital markets. Some key components of the recent ISA 2025 are that it repeals the prior Act of 2007; it presents a new way to classify exchanges, that is, composite and non-composite exchange; it brings digital assets under the purview of the Securities and Exchange Commission (SEC); it presents more subnational capital raising flexibility; and stricter penalties for financial crimes. This new legislation introduces reforms aimed at promoting greater market transparency, investor protection, and overall market integrity. The reforms are designed to address the changing dynamics of global finance, positioning Nigeria’s capital market to better compete on the international stage.
In one of his interviews, the Director-General of the Securities and Exchange Commission (SEC), Dr. Emomotimi Agama, explained the key components of the ISA 2025, emphasizing its potential to transform Nigeria’s financial markets. One of its most significant changes is the enhanced regulatory powers granted to the SEC, allowing the commission to take more robust action against market manipulation, insider trading, and fraudulent schemes that have plagued the financial markets in the past. With this increased authority, the SEC is better equipped to protect investors and attract more participation from both local and international investors.
Another important feature of the new Act is its inclusion of legal frameworks to regulate digital assets and online forex trading. These markets have seen substantial growth, particularly in Nigeria, where digital currencies and online forex trading platforms have become increasingly popular. The inclusion of these financial products under the ISA 2025 reflects the SEC’s commitment to adapting to emerging technologies and providing a safe environment for these investments. It also classified the Exchanges into Composite Exchanges—where investors can trade all types of investments like stocks, bonds, and cryptocurrencies; and Non-Composite Exchanges—where one type of investment, like stocks only or crypto only, can be traded.
Following by the weakening of the Naira in the last couple of days largely as a consequence of Donald Trump’s policies, we foresee efforts by the CBN to attract FPI inflows and to retain existing flows. This will most likely take the form of an OMO auction. In line with this and consistent with the trend towards end of the week, yields are expected to trend up across the yield curve (T-Bills and Bonds) and the equities market will be bearish.
Nigerian markets are not insulated from the global trend and will most likely follow it albeit with some delay. We expect the oil and crypto markets to stay bearish barring any unlikely US Fed decision to lower interest rates.
