Analysts are divided about the potential direction of the Central Bank of Nigeria’s (CBN) policies. The expectation of a stable Naira, coupled with a possible reduction in inflation, could create an environment conducive to a more tempered approach to monetary policy. In the views of many, the CBN, recognizing the need for balanced growth, may decide that the time is right to shift focus from hawkish tightening to a more growth-oriented stance, which would be a welcome development for the broader economy.
As Nigeria prepares for the release of its January 2025 inflation data (due this week), all eyes are peeled for the months ahead. With the inflation rate still a central concern for economists and policymakers, the soon-to-be-released figure will play an important role in setting the tone for the first quarter of 2025.
In line with the trend observed over the past fortnight, the liquidity position in the Nigerian financial markets remains persistently tight. Over the course of last week alone, the markets received repayments of ₦56.79 million on Monday, ₦144.87 million on Thursday, and ₦81.45 million on Friday. Yet, the inflows have failed to significantly ease the ongoing liquidity constraints. The lowest liquidity deficit observed during the week was on Monday (approximately ₦500 billion liquidity deficit).
The Naira, in the week under review, fluctuated between a high of $/₦1,517.00 on Thursday and a low of $/₦1,495.75 on Monday, closing at $/₦1,515.00 on Thursday. The money market sustained a huge liquidity deficit, and in line with this, short-term borrowing rates saw a slight uptick, with the O/N rate rising to 32.80% and OPR to 32.45%, up from the previous week’s 32.75% and 32.42%, respectively.
Analysts are divided about the potential direction of the Central Bank of Nigeria’s (CBN) policies. The expectation of a stable Naira, coupled with a possible reduction in inflation, could create an environment conducive to a more tempered approach to monetary policy. In the views of many, the CBN, recognizing the need for balanced growth, may decide that the time is right to shift focus from hawkish tightening to a more growth-oriented stance, which would be a welcome development for the broader economy.
As Nigeria prepares for the release of its January 2025 inflation data (due this week), all eyes are peeled for the months ahead. With the inflation rate still a central concern for economists and policymakers, the soon-to-be-released figure will play an important role in setting the tone for the first quarter of 2025.
In line with the trend observed over the past fortnight, the liquidity position in the Nigerian financial markets remains persistently tight. Over the course of last week alone, the markets received repayments of ₦56.79 million on Monday, ₦144.87 million on Thursday, and ₦81.45 million on Friday. Yet, the inflows have failed to significantly ease the ongoing liquidity constraints. The lowest liquidity deficit observed during the week was on Monday (approximately ₦500 billion liquidity deficit).
The Naira, in the week under review, fluctuated between a high of $/₦1,517.00 on Thursday and a low of $/₦1,495.75 on Monday, closing at $/₦1,515.00 on Thursday. The money market sustained a huge liquidity deficit, and in line with this, short-term borrowing rates saw a slight uptick, with the O/N rate rising to 32.80% and OPR to 32.45%, up from the previous week’s 32.75% and 32.42%, respectively.
TENOR | AUCTION DATE | OFFER (₦’ B) | BIDS (₦’ B) | RANGE OF BIDS (%) | STOP RATES (%) | PREVIOUS STOP RATES (%) | TOTAL SALE (₦’ B) |
355-DAY | 13-02-2025 | 300.00 | 415.85 | 22.2200-23.3800 | 21.3249 | 22.5000 | 402.85 |
362-DAY | 13-02-2025 | 300.00 | 1,499.68 | 22.2500-23.4800 | 21.4500 | 22.6500 | 993.00 |
With the National Bureau of Statistics (NBS) expected to release the January 2025 inflation figures on Monday—ceteris paribus—there are views as to where the figures would print. In December 2024, Nigeria’s inflation rate peaked at 34.80%, marking the fourth consecutive month of rising inflation. This sustained increase has heightened concerns about the cost of living and its impact on economic stability. However, the CBN remains optimistic, with Governor Olayemi Cardoso projecting a decline in inflation as the year progresses.
Analysts, too, are cautiously hopeful, with many predicting a significant reduction in inflation throughout 2025. Several factors are expected to contribute to this anticipated decline, including the continued stabilization of the Naira and the gradual improvement in exchange rates.
Despite the challenges of a high inflationary environment in late 2024, the outlook for 2025 remains cautiously optimistic. If the data for January reflects a notable decline in inflation, it would suggest that the economic reforms and currency stabilization efforts are beginning to take effect, offering hope for a more stable and sustainable economic trajectory in 2025. Conversely, if inflation remains high or shows little signs of improvement, the CBN may need to consider additional measures to rein in price increases and restore purchasing power to consumers.
As the first Monetary Policy Committee (MPC) meeting of 2025 approaches on the 19th and 20th of February, market participants and analysts alike are keenly anticipating the outcome. There is growing speculation regarding the CBN’s stance, especially in light of the recent relative stability of the Naira and the hopeful projections around easing inflation. Given these factors, many question whether the MPC will continue its aggressive tightening cycle or opt for a more dovish approach in the coming months.
The Naira’s comparative stability, especially considering the volatility experienced in previous years, has been one of the more positive developments in the market. Alongside this, there is anticipation that the inflation rate might show signs of cooling, particularly with the anticipated release of the January 2025 inflation figure. Should this forecast materialize, it could offer the CBN an opportunity to ease its aggressive stance.
The rebasing of Nigeria’s GDP and Consumer Price Index (CPI) could also play a pivotal role in shaping the inflation outlook. The recalibration of these key economic indicators often leads to a more accurate reflection of the country’s true economic performance, potentially showing a lower inflation rate than previously anticipated.
Where the inflation rate shows signs of moderating, there is a strong likelihood that the CBN will temper its hawkish policy stance. This could involve slowing down or even halting further interest rate hikes in favour of a more measured approach that seeks to stimulate economic activity.
Furthermore, any decision to ease monetary policy would also be in line with global trends, where many central banks are beginning to recalibrate their interest rates following a period of aggressive hikes to curb inflation. Where the CBN adopts a more dovish approach, it could provide much-needed relief for businesses and households while also helping to boost investor sentiment, especially in the fixed-income and equity markets.
As we look to the coming weeks, a key theme will be the combination of stabilizing domestic factors (such as inflation and local currency performance) and external developments, including global oil price movements, US trade policies, and management of Middle East tensions and the long-awaited end of war between Russia and Ukraine.
Lower inflation may drive bullish sentiment which could see the FG fund its humongous budget cheaper. We expect short-term yields to lead the curve further down albeit with slight retracements which are likely to be short-lived. In a nutshell, we expect interest rates in Nigeria to consistently drop marginally from hereon.
The trend in oil prices has continued to be crucial, hovering around $71 per barrel for WTI crude and $75 per barrel for Brent. While prices have pulled back from earlier highs, oil remains a critical revenue source for Nigeria, and any volatility in global oil prices will continue to affect the country’s fiscal position and foreign exchange reserves. The balance between supply and demand dynamics, OPEC+ policies, and geopolitical developments will be key drivers in the direction of oil prices in the coming months.
In the world of cryptocurrencies, prices have also been under scrutiny. Bitcoin, Ethereum, and other major digital currencies have fluctuated within tight ranges as investors weigh macroeconomic uncertainties against the promise of decentralized finance. Regulatory developments in key markets like the US and the EU are likely to remain a focal point, with growing calls for greater oversight and clearer regulations.
