MPR Hike Drags Nigerian Stocks to Record -0.5% Weekly Loss

Nigerian Stock Exchange Trading Floor. Image Credit: NGX

Notably, the banks bore the brunt of the selloffs following declines in UBA (-12.1%), FBNH (-10.9%), ZENITHBANK (-8.5%) and GTCO (-6.5%). As a result, the All-Share Index declined by 0.5% w/w to close at 97,612.51 points.

May 24, 2024/Cordros Report


According to the Office for National Statistics (ONS), the UK’s headline inflation eased by 90bps to 2.3% y/y in April (March: 3.2% y/y) – the lowest level since July 2021 (2.0% y/y). However, the data print exceeded the Bank of England’s (BoE) and financial market’s targets of 2.0% y/y and 2.1% y/y, respectively. Analyzing the breakdown, energy prices (-16.7% y/y vs March: -12.7% y/y) dipped further due to weaker gas and electricity prices as the government reduced the cap on household energy bills. At the same time, food prices (+2.9% y/y vs March: +4.0% y/y) eased for the 13th consecutive month. On a month-on-month basis, consumer prices eased by 0.3% (March: 0.6% m/m). Considering that the inflation print fell short of targets, we think it is unlikely that the BoE will implement a rate cut at the June Policy meeting. We think they may prefer to wait for additional data to confirm that inflationary pressures are under control. In addition, we think the tight labour market may also deter an immediate rate cut. That said, we anticipate that the BoE will maintain a “HOLD” stance at the June Policy meeting and implement a rate cut in August.

In line with market expectations, the People’s Bank of China (PBoC) kept its benchmark lending rates unchanged at the May meeting. Accordingly, the apex bank maintained its one-year loan prime rate (LPR) and five-year rates unchanged at 3.45% and 3.95%, respectively. Notably, this decision followed the bank’s choice to roll over maturing medium-term lending facilities the previous week, indicating a strategy to bolster economic recovery without adding more pressure on the local currency. In addition, the government pledged fresh stimulus for the real estate sector by announcing CNY300.00 billion in cheap funding to assist state-owned companies in purchasing unsold homes. Also, the floor on mortgage rates was removed while the minimum down payment for homebuyers was lowered. We believe the PBoC will keep the key policy rate unchanged at the June monetary policy meeting due to the weak local currency and improved economic activity indicated by Q1-24 GDP figures. At the same time, we envisage increased government stimulus for housing and consumption over the short to medium term.

Global Equities

Sentiments in the global equities market turned bearish this week due to uncertainties about major central banks’ interest rate paths. As a result, US equities (DJIA: -2.3%; S&P 500: -0.7%) are poised to close lower as hawkish comments from Federal reserve officials and stronger-than-expected S&P manufacturing and services PMI data reinforced a “higher-for-longer” narrative. European equities (STOXX Europe: -1.0%; FTSE 100: -1.6%) traded with negative sentiments as hotter-than-expected UK inflation data and US interest rate outlook reduced bets on rate cuts from the Bank of England (BoE) and the European Central Bank (ECB).  Asian markets were bearish (Nikkei 225: -0.4%; SSE: -2.1%) following losses in tech stocks and declines on Wall Street due to receding prospects for interest rate cuts by the Federal Reserve. The Emerging Markets index (MSCI EM: -0.8%) mirrored the bearish mood across global stocks, driven by losses in China (-2.1%). Conversely, the Frontier Markets index (MSCI FM: +0.2%) recorded a marginal gain, driven by positive sentiments in Romania (+0.4%).


Domestic Economy

According to the recently released data from the National Bureau of Statistics (NBS), the domestic economy maintained its positive growth trajectory, as real GDP grew by 2.98% y/y in Q1-24 (Q4-23: +3.46% y/y). On one hand, we highlight that the oil sector was positive for the second consecutive month, though growth moderated to 5.70% y/y in Q1-24 (Q4-23: +12.11%), indicating a slight improvement in crude oil production volumes in Q1-24 (1.54mb/d vs Q4-23: 1.53mb/d | Q1-23: 1.53mb/d). We attribute the improvement in crude oil production to efforts by the FG to curb crude oil theft and vandalism.  On the other hand, the non-oil sector grew slower by 2.80% y/y (Q4-23: +3.07% y/y) following a slowdown in the ICT (+5.43% y/y vs Q4-23: +6.33% y/y), trade (+1.23% y/y vs Q4-23: 1.40% y/y) and agriculture (+0.18% y/y vs Q4-23: +2.10% y/y) sub-sectors, while finance & insurance (+31.24% y/y vs Q4-23: 29.78% y/y) and manufacturing (+1.49% y/y vs Q4-23: +1.38% y/y) sub- sectors advanced. Barring any significant shock, we expect the oil sector to remain positive in Q2-24 partly due to the favourable base effects from the corresponding period of last year where oil production averaged 1.41mb/d. However, we expect the non-oil sector’s growth to settle lower than in Q1-24, in line with the near-term challenges arising from the renewed currency pressures, tight financial conditions, and elevated price pressures. That said, we project the economy will grow by 3.69% y/y in Q2-24.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously voted to increase the Monetary Policy Rate (MPR) by 150bps to 26.25%, translating to a total rate increase of 750bps in 2024. We highlight that the MPC’s decision to tighten was driven by its near-term inflation outlook, acknowledging the persistently elevated inflation risks and the necessity to consolidate the gains from previous rate hikes. In addition, the Committee also voted to retain the asymmetric corridor around the MPR at +100bps/-300bps, Cash Reserve Requirement (CRR) at 45.0%, and Liquidity ratio at 30.0%. We believe the MPC will remain hawkish in the near term, which aligns with their objective to tame the unabating inflationary pressures. Nonetheless, we anticipate a slower pace of increase in the near term, as we envisage a slowdown in consumer prices in H2-24 supported by the low base from the prior period. Thus, we expect the Committee will raise the MPR by 100bps at its next meeting scheduled for 22 and 23 July, 2024.

Capital Markets


Although the market started the week on a positive note, negative sentiments resurfaced later in the week as investors reacted to the MPC’s decision to further hike the MPR by 150bps. Notably, the banks bore the brunt of the selloffs following declines in UBA (-12.1%), FBNH (-10.9%), ZENITHBANK (-8.5%) and GTCO (-6.5%). As a result, the All-Share Index declined by 0.5% w/w to close at 97,612.51 points. Accordingly, the Month-to-Date and Year-to-Date returns settled at -0.6% and +30.5%, respectively. On activity levels, the trading volume increased by 20.2% w/w, while the trading value decreased by 4.6% w/w. Sectoral performance was mixed, with losses in the Banking (-7.3%) and Insurance (-3.5%) indices, while the Oil & Gas (+0.7%), Consumer Goods (+0.3%), and Industrial Goods (+0.2%) indices recorded gains.

Given the outcome of the MPC meeting, we believe the hawkish tone will continue to intensify risk-off sentiments in the domestic bourse. Thus, we anticipate cautious trading in the near term.

Money market and fixed income

Money market

The overnight (OVN) rate expanded by 232bps w/w to 33.0%, following debits for net NTB issuance (NGN130.00 billion) amid no significant inflows into the system. As a result, the average system liquidity this week settled at a net long position of NGN905.64 billion (vs NGN834.21 billion in the previous week).

We believe the debits for the OMO auction (NGN1.16 trillion) conducted today will pressure system liquidity, despite the expected inflow from the FGN bond coupon payment (NGN5.63 billion). Thus, we envisage the OVN rate will likely increase further next week.

Treasury bills

This week, the Treasury bills secondary market traded on a bullish note as unmet demand from the mid-week auction filtered into the secondary market. Consequently, the average yield across all segments declined by 18bps to 21.6%. Across the market segments, the average yield dipped by 19bps to 22.0% at the T-bills segment and contracted by 15bps to 20.8% at the OMO segment. At the NTB auction conducted on Wednesday, the apex bank offered instruments worth NGN508.98 billion – NGN331.01 billion for the 91D, NGN9.30 billion for the 182D and NGN168.67 billion for the 365D bills – to participants. The auction was hugely contested as the total subscription level settled higher at NGN1.59 trillion (bid-to-offer: 3.1x | previous auction: NGN914.05 billion), with more demand skewed towards the longer-dated bill (NGN1.43 trillion | 90.1% of total subscription). The auction closed with the CBN allotting instruments worth NGN638.98 billion – NGN60.69 billion for the 91D, NGN28.46 billion for the 182D and NGN549.83 billion for the 365D papers – at respective stop rates of 16.50% (previous: 16.24%), 17.45% (previous: 17.00%) and 20.69% (previous: 20.70%). Also, the CBN conducted an OMO auction today, offering bills worth NGN500.00 billion – NGN75.00 billion for the 95-day, NGN75.00 billion for the 179-day and NGN350.00 billion for the 361-day – to investors. Demand was healthy as total subscription settled at NGN1.16 trillion (bid-to-offer: 2.3x), as the CBN allotted all available bids across the three tenors – NGN10.00 billion for the 95-day, NGN5.65 billion for the 179-day and NGN1.14 trillion for the 361-day – at respective stop rates of 19.00% (previous: 18.99%), 19.74% (previous: 19.48%), 22.49% (previous: 21.50%).

Next week, we anticipate yields in the NTB secondary market will likely rise from current levels, given the prospects of tight liquidity conditions in the financial system.


Activities in Treasury bonds secondary market were muted for most of the week but interest in longer-dated instruments on the last trading day caused the average yield to decline by 2bps to 18.7%. Across the benchmark curve, the average yield advanced at the short end (+4bps) as investors sold off the MAR-2025 bond (+12bps) but closed flat at the mid segment. Meanwhile, the average yield contracted at the long end (-9bps) following demand for the JAN-2042 bond (-59bps).

We envisage yields in the FGN bonds secondary market is poised to increase in the near term following the 150bps hike in the MPR to 26.25% by the monetary authorities on Tuesday in its effort to rein in inflationary pressures. Meanwhile, our medium-term expectation is that yields will remain elevated, driven by the (1) anticipated monetary policy administration globally and domestically and (2) sustained imbalance in the demand and supply dynamics.

Foreign exchange

The country’s FX reserves recorded a further accretion this week, as the gross reserves level increased by USD73.05 million w/w to USD32.74 billion (22 May). Similarly, the naira appreciated by 1.0% to NGN1,482.81/USD at the Nigerian Autonomous Foreign Exchange Market (NAFEM), as the total turnover (as of 23 May) at the market declined by 39.4% WTD to USD851.83 million, with trades consummated within the NGN1,400.00/USD – NGN1,549.00/USD band. In the forwards market, the naira rates recorded on the 1-month (+1.1% to NGN1,504.10/USD), 3-month (+1.4% to NGN1,546.65/USD) and 6-month (+0.6% to NGN1,621.89/USD) contracts increased. Elsewhere, the rate on the 1-year (-0.1% to NGN1,769.62/USD) contract declined.

FX liquidity declined this week due to CBN’s lack of intervention in the FX market following weak FX reserves and moderate inflows from FPIs, leading to volatility of the currency in the FX market. Looking ahead, we expect the currency to remain under pressure in the coming week given weak liquidity. However, further out, expectations are that there will be Eurobond issuance, in addition to multilateral financing from the World bank coming in next month. If these come in and improve system liquidity, we could see the naira strengthen.

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