The Nigerian financial system has reacted positively to the Central Bank of Nigeria's (CBN) decision to cut the interest rate. The Monetary Policy Committee (MPC) reduced the Monetary Policy Rate (MPR) by 350 basis points from 26.50 per cent to 23.00 per cent. This move has led to a surge in optimism across various markets. Key indicators show measured optimism, with the naira appreciating and forex reserves rising.
The naira closed at N1,330.68 per dollar at the Nigerian Foreign Exchange Market (NFEM), representing a 0.1 per cent appreciation during the week. In the forwards market, the naira appreciated across all tenors. The one-month forward appreciated to N1,349.27 per dollar, while the three-month trade closed at N1,386.17 per dollar. The nation's external reserves increased by $136.76 million to $54.86 billion.
Nigerian equities rallied with a N1.5 trillion gain in net capital gains, pushing the total market capitalisation to N163.655 trillion. The benchmark index, the All Share Index (ASI), rose by 0.92 per cent, making Nigeria's average year-to-date return 62.01 per cent, one of the highest globally. This surge is attributed to expectations of reduced cost of funds.
At the post-MPC primary auction, demand for Nigerian Treasury Bills (NTBs) was N4.23 trillion, far exceeding the N600 billion offered by the Debt Management Office (DMO). The DMO allotted N497.58 billion, with rates contracting by 80, 70, and 73 basis points. This indicates a strong demand for NTBs.
The subsequent open market operation conducted by the CBN saw demand at N6.09 trillion, enabling the apex bank to double allotment to N2.25 trillion. OMO rates settled at 17.29 per cent for the 150-day instrument and 16.99 per cent for the 180-day bills. Cordros Capital Group reported a downward repricing of yields at the secondary market.
Analysts from Cordros Capital Group and CardinalStone Group attributed the improvement to robust local and offshore demand and further downward repricing following the MPC's rate cut. They expect the naira to remain stable and the Treasury bills secondary market to retain a bullish bias. The rate cut is seen as a positive turning point in the monetary policy cycle.
Experts, including Dr Muda Yusuf, CEO of Centre for the Promotion of Private Enterprise (CPPE), welcomed the MPC decision. They believe it will reduce financing pressures on businesses, strengthen investment prospects, support economic growth, and moderate the government's domestic debt-service burden. The policy adjustment is particularly positive for the real sector.
Key points
- The Central Bank of Nigeria cut the interest rate by 350 basis points to 23.00 per cent.
- Nigeria's external reserves increased by $136.76 million to $54.86 billion.
- Nigerian equities rallied with a N1.5 trillion gain in net capital gains.
