As Nigeria gradually settles into the year 2025, the financial markets are at a critical juncture, shaped by record inflation, elevated interest rates, and an evolving macroeconomic landscape. With inflation climbing to an all-time high of 34.80% in December 2024—contrary to expectations of a slight decline—individuals and businesses alike are keenly observing how monetary and fiscal strategies will unfold.
Adding to this anticipation, the first Monetary Policy Committee (MPC) meeting of the year, initially scheduled for January, has now been rescheduled to take place on the 17th and 18th of February 2025. The MPC decision(s) could set the tone for markets going forward.
In the week under review, the Naira traded at a high of $/₦1,560.00 on Tuesday and a low of $/₦1,540.20 on Friday. The week closed at $/₦1,548.00 on Friday. The interbank money market closed the week with a liquidity deficit of over ₦390 billion, while O/N and OPR closed at 32.75% and 32.33%, respectively, a notable rise from 27.86% and 27.29% in the previous week.
All focus is on the first bond auction of the year, particularly with the introduction of a new 2035 bond in the recently released Q1 2025 FGN Bond Issuance Calendar. Set to be auctioned on the 27th of January 2025, this bond adds another layer of intrigue, especially given that the existing March 2035 bond opened at a 12.50% coupon. Traders are keen to observe where the new issue will print. Recall that the April 2029 bond opened at 19.30% last year and the February 2031 bond at 18.50%.
A glance at recent issuances provides insight into traders’ sentiments. The prevailing consensus is that the new 2035 bond will land somewhere above the range for the April 2029 and February 2031 bonds, seeing that the 2031 bond traded above 22% in the secondary market, although the exact pricing remains a subject of debate. What is certain, however, is that the days of ultra-low coupon FGN bonds are well behind us, with investors now demanding significantly higher yields as compensation for real returns in an environment where inflation is running at a scorching 34.80% and the Monetary Policy Rate (MPR) has been heightened to 27.50%.
Market participants are split in their expectations. Some believe yields will remain elevated, given the high inflationary environment and the need for the government to attract sufficient demand. Others argue that where investor appetite is strong, there may be room for moderation in pricing. Ultimately, the Debt Management Office (DMO) faces the challenge of balancing fiscal sustainability with the need to keep borrowing costs in check. The outcome of this auction will serve as a key indicator of investor sentiment and set the tone for bond yields through the 1st half of 2025.
Reflecting on last year’s policy trajectory, the MPC consistently raised the Monetary Policy Rate (MPR), with only a few instances of maintaining the status quo. Currently at 27.50%, the benchmark rate has been the central tool in the battle against inflation. Given the persistent rise in consumer prices, some analysts believe that another hike remains a strong possibility, arguing that the Central Bank may continue tightening to restore positive real interest rates and reinforce investor confidence. Such a move would likely push bond yields even higher, sustaining the trend observed in 2024 when government securities saw elevated pricing to attract capital.
On the flip side, a growing school of thought suggests that the MPC might adopt a more measured stance, possibly holding rates steady to assess the impact of previous hikes. With economic activity already subdued due to tight monetary conditions, an overly aggressive approach could repress growth further.
Adding another dimension to the economic outlook is the proposed rebasing of Nigeria’s Gross Domestic Product (GDP) and Consumer Price Index (CPI). While rebasing is a routine statistical exercise that updates the base year to reflect current economic realities, it has significant implications for macroeconomic assessment and policymaking. The last GDP rebasing saw Nigeria emerge as Africa’s largest economy, changing perceptions about the country’s economic structure. A new rebasing could similarly alter key fiscal metrics, including the debt-to-GDP ratio, which may influence government borrowing strategies and investor confidence.
After inflation figures printed at 34.60% in November 2024, there was a flicker of optimism among market watchers, with some speculating that December’s numbers might show a marginal decline. However, the release of the December 2024 inflation report shattered such expectations, revealing that inflation had surged to a record high of 34.80%. This relentless upward trajectory has intensified discussions around the much-anticipated rebasing of Nigeria’s GDP and CPI, with many eager to decipher the broader implications of such a move.
More crucially, the rebasing of the CPI would impact how inflation is measured. If the CPI is adjusted to better reflect current consumption patterns, inflation figures might dip, at least statistically. While this could provide some relief, it may not necessarily translate to a reduction in the cost-of-living crisis that Nigerians are faced with. The real challenge remains implementing structural reforms that ensure price stability, economic growth, and improved living standards.
For the financial markets, the impact of this recalibration could be twofold. Where the rebasing exercise results in lower inflation prints, bond markets may see some respite, with yields adjusting accordingly. However, if the exercise exposes previously understated inflationary pressures, it could further alarm investors and lead to heightened risk aversion. Most market participants tend to think the prior will be the case.
Beyond the financial corridors, the average Nigerian is keen to understand what this all means in practical terms. Will it ease the cost-of-living crisis? Will it change the purchasing power dynamics? These are the pressing concerns that policymakers must continue to address transparently.
With inflation at a record high, interest rates elevated, and the government navigating complex fiscal and monetary challenges, 2025 is shaping up to be a defining year for Nigeria’s financial markets. Specifically, the upcoming MPC meeting will play a critical role
in shaping market sentiment and economic direction. While uncertainties remain, one thing is clear—the decisions made in the coming months will have lasting implications for investors, businesses, and the average Nigerian.
Globally, as President-elect Donald Trump prepares for his inauguration on Monday, significant shifts are anticipated in both the cryptocurrency and oil markets, reflecting his administration’s policy priorities.
The cryptocurrency community is perceived to be positioned for a transformative era under the incoming administration. Reports indicate that President-elect Trump plans to issue an executive order designating cryptocurrency as a national policy priority. This directive will aim to establish a more favourable regulatory environment, potentially including the creation of a Bitcoin reserve.
Additionally, the appointment of crypto-friendly officials to key regulatory positions, such as the Securities and Exchange Commission (SEC), is anticipated to facilitate a comprehensive overhaul of cryptocurrency policies. This strategic move is likely to promote innovation and provide clearer guidelines for crypto enthusiasts. Cryptocurrency valuations are likely to skyrocket albeit temporarily.
In the commodities market, there are talks about expectations to prioritise the expansion of fossil fuel production, such as issuing executive orders to maximise U.S. oil and natural gas output by reducing regulatory constraints and expediting infrastructure projects. This policy encourages domestic energy production and reduces reliance on foreign energy sources. Oil prices are likely to drop in tandem with this as Trump takes over the White House.
