The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) sustained its contractionary policy stance at the final meeting of the year in November, raising benchmark interest rate by 25bps to 27.50%, bringing the cumulative rate hike to 875bps in 2024. This underscores the resolute stance of the apex bank in combating inflation and restoring price stability amid high inflation in the Nigerian economy. Furthermore, other policy parameters such as the Cash Reserve Ratio (CRR), Liquidity Ratio and the Asymmetric corridor around the MPR were retained at 50.00%, 30.00% and +500/-100bps, respectively.  Regarding foreign exchange, the committee urged banks to prioritize the improvement of liquidity to cool the pressure in the market amid concerns about volatility. Meanwhile, as a follow up to the monetary policy action by the CBN at the meeting, the two-tier Standing Deposit Facility (SDF) system was abolished.

Going forward, we expect the local fixed income market to be slightly bullish in December 2024, as we see scope for moderation in yields across the curve. This is hinged on the expectation that the DMO will likely be cautious with borrowing in the remainder of the year, having borrowed about USD2.20bn in the recently concluded Eurobond issuance, which is still targeted at financing government spending in 2024. Additionally, we expect the year end effect to also set in and impact the direction of yields in the market to the downside.

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