The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) halted its policy rate tightening cycle at the first meeting of the year, marking the first pause since it began raising rates in May 2022.
The MPC’s decision was primarily steered by its optimistic inflation outlook, underpinned by the naira appreciation and the steady reduction in PMS prices amid the impact of the CPI rebasing on the inflation print.
Accordingly, the Committee voted to hold the MPR constant at 27.50% and retain all other parameters – Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) and Merchants Banks at 50.0% and 16.0%, respectively; the asymmetric corridor around the MPR at +500bps/-100bps and the liquidity ratio at 30.0%.
On Domestic Growth: The Committee anticipates robust GDP growth in the medium term, driven by strong contributions from the non-oil sector. Additionally, the MPC noted the sustained rise in domestic crude oil production (1.74mb/d) and expects an improved contribution from the oil sector, further strengthening overall GDP growth.
On Inflation: The MPC acknowledged the rebasing of the CPI as well as the adjustments in the weights of items in the CPI basket, citing that the new methodology reflects current consumption patterns. Furthermore, the Committee expects inflationary pressures to moderate in the near future, helped by a relatively stable naira and gradual moderation in PMS prices.
On External Sector: The MPC highlighted the recent naira appreciation buoyed by improved FX liquidity. The Committee also acknowledged the current measures by the CBN to foster transparency and credibility in the FX market, including the implementation of the Electronic Foreign Exchange System (EFEMS) and the Nigerian Foreign Exchange Market (NFEM) FX Code. The Committee expects the sustained policy initiatives to improve Foreign Direct and Portfolio investments as investors’ confidence increases. The MPC also highlighted that the increased domestic crude oil production is expected to improve the current account balance and support FX reserve accretion.
On Global Development: The Committee noted that while the Russia-Ukraine war and Middle Eastern conflicts remain downside risks to global GDP, potential resolutions could emerge following policy actions by the new US administration. Additional risks include a possible global trade war driven by US tariff hikes, which may heighten inflationary pressures and weigh on global growth. However, the MPC highlighted that the IMF has maintained its global GDP growth forecast at 3.3% for both 2025 and 2026.
Cordros’ View
As anticipated, the MPC retained the MPR at 27.50% while keeping other parameters unchanged. Notably, despite the lower inflation reading under the new CPI methodology, the MPC’s stance signals a cautious approach. The CBN governor stressed the need for further inflation data to confirm a sustained moderation. He reaffirmed the MPC’s commitment to orthodox monetary tools to drive inflation toward minimal levels over the medium to long term.
Looking ahead, we expect future MPC decisions to be primarily influenced by developments in the FX market and the trajectory of inflation. While a potential rate cut could be considered at the May policy meeting, we anticipate a gradual approach aimed at balancing exchange rate stability with the anticipated disinflationary process.
Market Impact
Fixed Income: Ahead of the MPC meeting, market participants had already begun repricing yields downward despite the tight liquidity conditions in the financial system. With the lower inflation print — driven by the CPI rebasing — and the MPC’s decision to hold rates in line with expectations, we anticipate further moderation in yields.
The decline in stop rates across all tenors at Wednesday’s NTB auction reinforces this outlook, signalling a southward movement in yields in the fixed income market in 2025. Consequently, we expect investors to keep securing high-yielding bills in anticipation of a medium to long-term decline in rates.
Equities: We believe the domestic equities market might respond positively to the MPC’s decision to pause interest rate hikes as investors assess the likelihood of policy easing in the medium term. Also, further declines in fixed income yields may trigger a capital shift to the equities market, supporting broader market activity.
While we note that the All-Share Index’s year-to-date return remains subdued at +5.5% (vs. +35.2% in the same period last year), we anticipate a gradual revival of risk appetite, further supported by declining inflation (following the rebasing) and expectations of currency stability.
We also expect to see some rotation into sectors positioned for expansion in a lower-rate environment, particularly the manufacturing sector, as lower financing costs, improved input cost dynamics, and stronger consumer demand enhance growth prospects, making the sector more attractive to investors.
Furthermore, foreign portfolio investor (FPI) participation is expected to rise (2024: 15.3% | 2023: 11.5%) as improving macroeconomic conditions and prospects of monetary easing enhance the appeal of Nigerian equities.
