Nigeria’s MPC Maintains Monetary Policy Rate at 27.5%
Investment Research Weekly Market Commentary | May 26, 2025
Welcome to this week’s edition of our stock market newsletter!
Green White Green Recap
Macro Update
Nigeria’s MPC Maintains Monetary Policy Rate at 27.5%
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria decided to hold the Monetary Policy Rate (MPR) steady at 27.5%. Other key parameters were also maintained, including the asymmetric corridor at +500/-100 basis points, the Cash Reserve Ratio (CRR) at 50%, and the Liquidity Ratio at 30%.
These decisions mean that the interest rates that investors earn and borrowers pay is unlikely to change. The MPC’s decision to maintain interest rates is also despite a slight easing of headline inflation from 24.23% to 23.71% in April 2025, and a sharp reduction in monthly inflation to 1.8% from 3.9% in March 2025.
While the slowdown in monthly inflation suggests that inflationary pressures are cooling, the CBN is waiting to see if it would be sustained given the many risks locally and globally. The US trade war with its partners and declining crude oil prices pose a risk to exchange rate stability
Key Takeaways:
Although inflation moderated, risks to inflation remain, prompting the MPC to keep rates steady to control price pressures.
Stable interest rates remain critical to attracting foreign investors to support the Naira’s stability
FX Update
Naira Shows Mixed Movements Amid Global Oil Price Pressures and CBN Market Interventions
The Nigerian naira displayed mixed performance in the foreign exchange market this week, driven by global pressures on oil prices and active interventions by the Central Bank of Nigeria (CBN). International oil prices declined by approximately 10% to around $64 per barrel in May 2025 due to increased OPEC production and ongoing geopolitical and trade tensions. Since oil exports account for over 90% of Nigeria’s FX earnings, this decline has tightened FX inflows.
On Friday, May 23, 2025, the naira appreciated in the official foreign exchange market, closing at ₦1,579/$, up from ₦1,586/$ on Thursday. Conversely, in the parallel market, the naira depreciated to ₦1,625/$ from ₦1,620/$ the previous day, indicating ongoing demand pressures outside official channels.
The CBN’s foreign reserves declined slightly from $32.82 billion to $32.74 billion, reflecting the impact of increased dollar supply to stabilise the naira amid weak oil exports and foreign investment.
Key Takeaways:
Falling oil prices continue to exert downward pressure on FX inflows, the core driver of naira stability.
The CBN’s dollar sales have provided short-term support but may not be sustainable without improved oil exports and investor confidence.
Investor Advice:
Long-term investors should consider diversifying into dollar-denominated assets to protect wealth. Dollar savings platforms like Ladda can help safeguard dollar-based goals against naira.
Equities Update
Nigerian Stocks Edge Higher Amid Consumer and Industrial Sector Gains
The Nigerian equities market showed resilience over the past week, with the All-Share Index (ASI) closing at 109,183.02 points, rising by 0.41% and increasing the year-to-date gain to 6.08%.
Sector Performance:
Consumer Goods: The Consumer Goods Index led sectoral gains, rising by 5.41%, driven by strong performances in stocks like Cadbury Nigeria and Northern Nigeria Flour Mills.
Industrial Goods: The Industrial Goods Index increased by 1.09%, supported by gains in companies such as Dangote Cement.
Banking: The Banking Index declined by 0.3%, with notable losses in stocks like GTCO and Zenith Bank.
Oil & Gas: The Oil & Gas Index fell by 2.9%, influenced by declines in companies like Oando and Eterna.
Key Takeaway:
The Nigerian equities market remains resilient, driven by positive Q1 earnings which set the tone for the rest of the year. While positive corporate earnings and macroeconomic indicators provided support, global risk factors may influence market dynamics in the near term.
Fixed Income Update
Treasury Bill Yields Mixed, Long Tenors Lead as CBN Maintains Rates
The Central Bank of Nigeria (CBN) held a Treasury Bills auction this week, on May 21, 2025. Stop rates were maintained at 18.00% for the 91-day bill and 18.5% for the 182-day bill, while the 364-day bill saw a slight decrease to 19.56% from 19.63% at the last auction. Despite the higher stop rate on the 182-day bill compared to the 364-day bill, the true yield on the 364-day tenor was significantly higher at 24.31%, reflecting the longer duration and compounding effect.
CBN’s Role:
The CBN has continued to implement tight monetary policy, keeping auction rates elevated to attract investor funds and manage inflation, which remains above 23%. Its actions have helped stabilise government borrowing costs while still providing attractive yields to investors.
What Investors Stand to Gain or Lose:
Investors holding longer-dated Treasury bills, especially the 364-day tenor, are benefiting from yields that outpace inflation, preserving real returns despite economic challenges. Shorter-term bills, however, offer less inflation protection and may expose investors to diminished purchasing power. All naira-based instruments carry currency risk amid ongoing FX volatility, meaning unhedged naira holdings face erosion in real value due to persistent inflation.
It’s important to note that auction stop rates, which set the price for new securities issued by the CBN, often differ from yields in the secondary market where investors trade existing bills. This week, secondary market yields on longer maturities remained elevated as investors seek higher compensation for inflation and currency risks, while shorter maturities saw more modest yield changes. Understanding this difference helps investors better navigate pricing and timing decisions in Nigeria’s fixed-income market.
Key Takeaways:
Longer-dated Treasury bills continue to offer yields above inflation, protecting investors’ real returns.
Investor Strategy:
You can invest in treasury bills to save for your short-term goals like rent, school fees, etc. through Ladda—a fintech app that helps you save at high returns. For long-term goals, naira-denominated fixed income instruments are not suitable due to inflation and currency risks.
Star-Spangled Banner Recap
Investor Sentiment Dampened by US Fiscal and Trade Policy Moves
Investor sentiment turned mixed this week as concerns mounted over the implications of the newly passed US tax bill and fresh trade threats from the White House.
The US House of Representatives approved a sweeping tax reform package that includes significant corporate and individual tax cuts. While the bill promises short-term economic stimulus, analysts warn it could sharply widen the federal deficit. According to projections, the tax cuts, especially if temporary provisions become permanent, could add nearly $4 trillion to the national debt over the next decade, stoking fears of rising borrowing costs and long-term fiscal instability.
Meanwhile, trade tensions flared after President Trump proposed a 50% tariff on imports from the European Union and floated the idea of a 25% tariff on Apple products manufactured outside the US. These announcements rattled global markets, with investors concerned about retaliatory measures and further disruption to already fragile global supply chains.
Together, these developments have weakened risk appetite across global equities, with markets weighing the trade-off between short-term stimulus and longer-term macroeconomic risks.
Major Market Performance:
US Markets:
US stock markets closed lower on Friday, with the S&P 500 declining by 0.7%, the Dow Jones Industrial Average dropping 0.6%, and the Nasdaq Composite falling 1%. The declines were attributed to renewed trade tensions following President Trump's threat to impose a 50% tariff on European goods and a 25% tariff on Apple products manufactured outside the US. These developments reignited concerns over global economic stability ahead of the Memorial Day weekend.
European Markets:
European stock markets experienced significant declines on Friday. The pan-European STOXX 600 index fell by 1%, Germany's DAX dropped 1.5%, and France's CAC 40 declined 1.7%. The UK's FTSE 100 also saw a decrease of 0.2%. These drops followed President Trump's announcement of a 50% tariff on EU imports, effective June 1, which heightened fears of escalating trade tensions.
Asian Markets:
Asian markets closed mixed on Friday. Japan's Nikkei 225 rose by 0.5%, while China's Shanghai Composite declined by 0.9%. Hong Kong's Hang Seng Index closed at 23,601.26, up 0.24% for the day. This marked the index's seventh consecutive weekly gain, supported by easing US-China trade tensions and the People's Bank of China's recent liquidity measures.
Key Takeaways:
The dominant theme in global markets this week is the uncertainty surrounding US fiscal policy and the continued impact of trade tensions. We expect sustained volatility in the near term as investors digest these developments. Diversifying your investments can help weather these uncertainties and support long-term growth.
Remember to always save in dollars for your dollar goals. You can do this with us on Ladda, a fintech app that helps you save at high returns.
We hope you find this edition insightful, and as always, stay focused on your financial goals!
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