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| The Central Bank of Nigeria (CBN) has adopted a decisive approach to address inflation and stabilize the economy by significantly raising the monetary policy rate (MPR) by 400 bps, setting it at an unprecedented 22.75% and diverging from the previous rate of 18.75%. Concurrently, the Cash Reserve Ratio (CRR) has been increased from 32.5% to 45%, while maintaining the liquidity ratio at 30%, showcasing the CBN’s assertive response to inflationary pressures. CBN Governor Yemi Cardoso announced the decision, citing concerns over escalating inflation, exchange rate volatility, and anticipation of further inflation. The committee emphasizes the importance of balancing economic growth and inflation control, advocating for a long-term transition to an inflation-targeting framework to achieve sustainable economic expansion in a low and stable inflation environment. The CBN acknowledges trade-offs between output growth and inflation control, expressing confidence that enduring expansion is achievable only in an environment of low and stable inflation. The committee commends fiscal authorities for their support in stabilizing the economy. In a successful auction, the CBN sold a record N1.056 trillion in one-year Open Market Operation (OMO) bills with a high yield of 27.3%. The stop rate on the one-year bill increased to 21.5%, up from the previous auction’s 17%. Despite being oversubscribed by N1.01 trillion, three times the offered amount, strong investor demand was observed. CBN Governor Olayemi Cardoso had signaled the potential for higher rates, aligning them closer to the recently increased Monetary Policy Rate (MPR) of 22.75%. The auction is part of CBN’s strategy to attract foreign portfolio inflows and manage liquidity. The move comes amid a backdrop of soaring headline inflation in Nigeria, reaching 29.9% in January, leading the CBN to estimate a medium-term moderation to 21.4%. The shorter-tenor OMO bills experienced lower demand, indicating the prevailing market dynamics. This action follows the CBN’s plan to increase OMO frequency and volumes to absorb liquidity and offer investment opportunities for Foreign Portfolio Investors (FPIs). Money Market Interbank rates increased on a weekly basis, attributed to decreased market liquidity caused by various outflows such as the FX intervention payment, NNPC remittance to the CBN, and the settlement of the OMO PMA at the week’s conclusion. Consequently, the Open Buy Back rate (OBB) and the Overnight rate (O/N) concluded at 27.16% and 28.19%, marking an increase of 225 bps and 244 bps, respectively. We anticipate that rates will remain at their current levels. Treasury Bills The Treasury Bills Market started the week with increased buying interest on the Feb-2025 papers. However, following the OMO PMA results, the market turned bearish. At the auction, the CBN offered N500 billion across three maturities, with a total subscription of N1.13 trillion and total amount of N1.05 trillion. Stop rates closed higher than previous levels at 19.00%, 19.50%, and 21.50% compared to 17.24%, 18.00%, and 19.00%. Consequently, the average benchmark yield rose by 37 bps week-over-week, settling at 17.85%. We anticipate a bearish bias during the next trading session. FGN Bond Market The FGN Bonds market began the week with a bearish tone as traders exercised caution in anticipation of the MPC meeting’s outcome. Following the meeting, where the MPR was raised by 400 bps to 22.75% from 18.75% and the CRR increased to 45% from 32.50%, the bearish sentiment persisted to the end of the week. The results of the OMO PMA further fueled this trend. As a result, the average benchmark yield increased by 46 bps, concluding the week at 17.28%. We anticipate a continuation of this trend in the upcoming trading session. Eurobond Market Throughout the week, the FGN Eurobond market experienced a mix of sentiments influenced by various reports from the US. Notably, the US GDP report for Q4 ’23 revealed a slight decrease of 0.10%, settling at 3.20%, deviating from both expectations and the previous figure of 3.30%. Additionally, the core PC report aligned with predictions at 2.80%, surpassing the previous level of 2.90%. Towards the week’s end, the US ISM Manufacturing PMI indicated a decline to 47.80, falling short of the expected 49.50 and the last recorded value of 49.10. Consequently, the average benchmark yield saw a week-on-week decrease of 3 bps, reaching 9.76%. We anticipate this calm trend to persist. Currency Market The value of the Naira to the dollar strengthened by 704 bps week-on-week to print at ₦1,548.25/$ this week at the Nigerian Autonomous Foreign Exchange Market Window. Equities Market In the weekly recap, the local stock market predominantly exhibited bearish performance, with the NGX All-Share Index experiencing a 123-bps drop day-on-day (DoD) and a 327-bps decline week-on-week (WoW), concluding at 98,751.98 points. As a result, the year-to-date growth saw an increase of 32.07%, while the market capitalization decreased by ₦1.790 trillion to reach ₦54.03 trillion. Upon closer examination, the weekly market breadth stood at 0.42x, indicating 60 stocks on the decline compared to 25 advancing ones. Analyzing trade statistics, the total trading volume rose by 26.33% to 367.62 million units, and the total traded value increased by 12.68%, closing at ₦6.78 billion. TRANSCORP emerged as the most traded stock by volume for the week with 218.81 million units, followed by UBA with 208.87 million units and ZENITHBANK with 158.10 million units. Regarding the top-valued equities of the week, ZENITHBANK took the lead at ₦2.15 billion, followed by UBA at ₦4.67 billion, and FBNH at ₦3.08 billion. |
