Global Economy
The Federal Open Market Committee (FOMC), in line with market expectations, voted to maintain the target range for the federal funds rate at 4.25% – 4.50% for the third consecutive meeting during its recently concluded March policy meeting.
Additionally, the Committee announced plans to slow the reduction of its securities holdings by lowering the monthly redemption cap on Treasury securities from USD 25.00 billion to USD 5.00 billion starting in April while keeping the cap on agency debt and agency mortgage-backed securities unchanged at USD 35.00 billion.
Notably, the Committee revised its key 2025FY projections, lowering its GDP growth forecast to 1.7% y/y (previously 2.1% y/y) and raising its PCE inflation forecast to 2.7% y/y (previously 2.5% y/y). Following the adjustment of key projections, the Committee reiterated its anticipation of two interest rate cuts for 2025FY.
Looking ahead, we expect the growing uncertainty regarding the US economic outlook to remain fuelled by the ongoing tariff war between the US and its key trading partners. This uncertainty will be largely characterised by increased costs for businesses & consumers, job insecurity (in affected industries), disruptions in supply chains, and lower economic growth.
As such, the Fed will likely monitor these risks closely to balance its mandates of employment and price stability. Notably, the CME FedWatch tool assigns an 82.6% probability that the Fed will keep the key interest rate unchanged at its 7 May policy meeting.
Meanwhile, the Bank of England (BoE) voted 8 – 1 to maintain the Bank Rate at 4.5% following the conclusion of its March monetary policy meeting. Notably, Governor Andrew Bailey emphasised the growing uncertainty hanging over the British and world economies, warning against assumptions of a broadly dovish stance in subsequent meetings, as the committee intends to closely monitor the evolution of global developments, striking a balance between economic growth preservation and price stability (relative to its 2.0% target for inflation).
That said, considering the intensified global trade tension following the recent import tariff announcements from the US and consequent retaliation from affected partners, we expect the BoE to retain a measured and cautious approach in subsequent monetary policy meetings while continuously reassessing its inflation outlook. Ultimately, we anticipate the BoE will keep rates unchanged at its next policy meeting in May.
Global Market
This week, positive sentiments returned to the global equities markets as investors evaluated policy rate decisions and economic outlooks from the US Federal Reserve, the Bank of England (BoE), the Bank of Japan (BoJ), and the People’s Bank of China (PBoC). Accordingly, US equities (DJIA: +1.1%, S&P 500: +0.4%) were on track to close the week higher, following the Federal Reserve’s decision to maintain interest rates as expected while signalling two potential rate cuts later in the year. Investors also reacted positively to US retail sales data, which increased by 0.2% m/m in February 2025, recovering from a downwardly revised 1.2% decline in January.
At the same time, European equities (STOXX Europe: +1.2%, FTSE 100: +0.8%) were poised for a positive close, driven by optimism surrounding Germany’s fiscal reforms following parliament’s approval of a significant spending plan aimed at revitalising economic growth and increasing military spending. UK stocks also saw gains, fueled by energy and mining sectors, despite market concerns about the Bank of England’s cautious stance on future rate cuts and the OECD’s downgraded economic growth forecast.
Meanwhile, in Asia, Japanese equities (Nikkei 225: +1.7%) advanced, mirroring Wall Street’s gains, with further support from reactions to Japan’s trade balance swinging to a surplus in February. Conversely, Chinese equities (SSE: -1.6%) closed lower due to a lack of specific details on the timing and scale of Beijing’s plans to boost consumer spending and profit-taking in Chinese technology and artificial intelligence stocks. Finally, Emerging and Frontier Markets (MSCI EM: +1.9%, MSCI FM: +0.9%) indices posted gains, reflecting strong performances in India (+4.3%) and Morocco (+5.3%), respectively.
Nigeria: Domestic Economy
According to the National Bureau of Statistics (NBS), the rate of increase of consumer prices in the Nigerian economy moderated to 23.18% y/y in February (January: 24.48% y/y) based on the rebased CPI basket. We attribute this moderation primarily to the reduced exchange rate pass-through on consumer prices, given the (relative) stability of the naira in recent months. Additionally, lower energy costs also played a key role in the observed slowdown in February.
Parsing through the breakdown, food inflation eased to 23.51% y/y (January: 26.10% y/y), driven in part by the likely extension of the main harvest period following its delayed onset in December 2024, while core inflation (All items less farm produce and energy) edged higher to 23.01% y/y (January: 22.59% y/y). On a month-on-month basis, the headline inflation slowed by 866bps to 2.04% m/m (January: 10.70% m/m).
Looking ahead, we expect a rise in consumer demand in March, driven primarily by Ramadan and Eid festivities, which could exert upward pressure on prices. However, with reduced naira volatility and lower energy costs, inflationary pressures are expected to be more subdued than in the same period last year when sharp naira depreciation in Q1-24 triggered a steep price surge. Thus, we expect to see further moderation in the headline inflation numbers in March through to the near term.
The Purchasing Manager’s Index (PMI) printed above the 50-point threshold for the third straight month, indicating a sustained expansion of business activities in the Nigerian economy. According to CBN, the composite PMI expanded to 51.4 points in February (January: 50.2 points), driven by broad-based increases in output across the industry, agriculture, and service sectors relative to the improving demand.
Specifically, the agriculture sector PMI (53.1 points vs January: 52.5 points) expanded to an eight-month high, supported by improvement in general farming activities. The Services sector PMI (51.1 points vs January: 48.6 points) returned to an expansionary level, reflecting increased activities across Finance & Insurance, Wholesale trade, Motion pictures & Music production and Educational services sub-sectors. Furthermore, the Industrial sector (50.5 points vs January: 51.3 points) moderated, albeit remaining marginally above the 50-point threshold, due to resilient activities in the Cement, Electrical equipment and Furniture & related products subsectors.
Looking ahead, we anticipate a sustained expansion of private sector activities, driven by improving macroeconomic conditions such as naira stability and easing inflationary pressures. However, persistently tight financial conditions may present a downside risk to overall economic activity in the near term, pending the much-anticipated dovish tilt in the monetary policy paradigm.
Capital Markets: Equities
The domestic stock market extended its bearish run for the fourth consecutive week, as losses in BUACEMENT (-10.0%), TRANSCORP (-7.8%) and GTCO (-4.6%) drove the All-Share Index (ASI) lower by 0.9% w/w to 104,962.96 points. As a result, the month-to-date and year-to-date returns moderated to -2.7% and +2.0%, respectively.
Trading activity mirrored the broader market sentiment, as both volume and value fell by 12.1% w/w and 25.3% w/w, respectively. Similarly, sectoral performance was predominantly negative, with the Industrial Goods (-3.4%), Insurance (-2.9%), Banking (-2.6%), and Oil & Gas (-1.1%) indices recording losses, while the Consumer Goods (+0.1%) index posted a modest gain.
In the coming week, we anticipate continued market volatility as investors analyse a slew of audited earnings reports and associated dividend announcements set to be released during the week.
Money Market and Fixed Income
Aligning with our expectations, the overnight (OVN) rate expanded by 10bps w/w to 32.9% as NTB auction debits (NGN503.92 billion) offset inflows from FGN bond coupon disbursements (NGN397.33 billion). Consequently, the average system liquidity worsened to settle at a net short position of NGN1.52 trillion (vs net short position of NGN463.62 billion in the previous week).
Next week, we expect FGN bond PMA debits (c. NGN300.00 billion) to outweigh inflows from FGN bond coupon disbursements (NGN202.34 billion), causing the OVN rate to remain elevated.
Treasury Bills
The Treasury bills secondary market was bearish this week, underpinned by (1) the liquidity dearth in the financial system and (2) market participants selling off bills to participate in the primary market auction. Consequently, the average yield expanded by 15bps to 20.9%. Across the market segments, the average yield advanced by 11bps and 13bps to 19.3% and 22.5% in the NTB and OMO segments, respectively.
At Wednesday’s NTB auction, the CBN offered bills worth NGN 800.00 billion – NGN 100.00 billion for the 91D, NGN 200.00 billion for the 182D, and NGN 500.00 billion for the 364D bills. Subscription level settled lower at NGN902.04 billion (previous auction: NGN 1.27 trillion), with a bid-to-offer ratio of 1.1x (previous auction: 2.3x). The auction closed with the DMO allotting NGN 503.92 billion – NGN 27.19 billion for the 91D, NGN 40.02 billion for the 182D, and NGN 436.71 billion for the 364D papers – at respective stop rates of 18.00% (previous: 17.00%), 18.50% (previous: 17.79%) and 19.94% (previous: 18.39%).
Next week, we expect the still tight interbank liquidity to cause yields to slightly rise further in the secondary treasury bills market. Additionally, CBN is scheduled to conduct an NTB PMA next Wednesday (March 26), with NGN700.00 billion worth of maturing bills on offer.
Bonds
Similarly, the FGN bond secondary market experienced bearish sentiments, with investors exiting positions on the MAR-2025 bond ahead of its maturity on March 23. Accordingly, the average yield increased by 28bps to 18.80%. Across the benchmark curve, the average yield increased at the short (+71bps), mid (+20bps), and long (+4bps) segments following selloffs of the MAR-2025 (+344bps), JUN-2033 (+32bps), and JAN-2042 (+24bps) bonds, respectively.
Next week, we believe the outcome of this month’s FGN bond auction on Monday (24 April) will shape the direction of yields in the secondary market. At the auction, the DMO is set to offer instruments worth NGN300.00 billion through re-openings of the APR-2029 and MAY-2033 bonds. Over the medium term, we still expect moderation in bond yields to be influenced by (1) the anticipated dovish monetary policy stance and (2) demand and supply dynamics.
Foreign Exchange
The official FX rate appreciated by 0.1% to NGN1,537.65/USD as the CBN’s intervention of c. USD230.85 million to authorised dealers helped reduce the volatility of the naira. Meanwhile, gross FX reserves decreased this week by USD2.65 million w/w to USD38.36 billion (19 March). In the forwards market, the naira rates increased across the 1-month (+0.1% to NGN1,5780.82/USD) and 3-month (+0.1% to NGN1,655.95/USD) contracts, while it decreased across the 6-month (-0.2% to NGN1,768.61/USD) and 1-year (-1.1% to NGN1,989.81/USD) contracts.
While market demand pressures have eased, near-term risks to naira volatility persist. Notably, foreign portfolio investment (FPI) participation in the FX market remains subdued, partly due to concerns over oil receipts amid lower oil prices. Additionally, the potential for a surge in market demand looms, driven by the Dangote Refinery’s shift to selling petroleum products in U.S. dollars instead of naira following the expiration of the crude-for-naira deal.
Cordros
