On Domestic Growth: The Committee acknowledged the robust growth recorded in Q4-24 (3.84% y/y vs Q3-24: 3.46% y/y), which was largely driven by strong growth in the services, manufacturing and agricultural sectors, despite the moderation in the oil sector growth. 

On Inflation: The MPC also acknowledged the sustained moderation in food inflation (-53bps to 21.26% y/y). However, it noted that elevated electricity tariffs and the recent naira depreciation have kept core inflation persistently high, with the rate standing at 23.39% in April. Nonetheless, the Committee expressed optimism that the relative stability in the exchange rate and the moderation in PMS prices could help ease overall consumer price pressures in the near term.

On External Sector: The MPC acknowledged the recent build-up in external reserves, which rose by 2.9% to USD38.90 billion (from USD37.82 billion as of March 31), providing a buffer of over 7.0 months of import cover for goods and services. Conversely, the balance of payments surplus narrowed to USD1.10 billion in Q4-24, down from USD4.21 billion in Q3-24, largely due to a moderation in the current account surplus. The Committee also highlighted the CBN’s intensified efforts to curb heightened naira volatility through ongoing market reforms and strategic FX interventions, particularly in the face of persistent global headwinds.

On Global Development: The Committee underscored the mounting global pressures, largely driven by the United States’ unfavourable trade policies. Heightened uncertainty, coupled with expectations of increased oil output from OPEC+, has contributed to a moderation in crude oil prices—raising concerns over the potential adverse effects on Nigeria’s fiscal revenues and widening fiscal deficit. According to the MPC, the global economy is expected to maintain positive growth despite shocks posed by the increased trade tension. This is in line with the IMF’s global growth projection of a 2.8% y/y in 2025 and 3.0% y/y in 2026.

Cordros’ View

The tone of the latest MPC meeting reflected a cautious approach—aligning with our expectations—amid rising global economic uncertainty and high inflation risk fueled by recent naira volatility. The Committee emphasized the importance of monitoring both domestic and international developments, a perspective that underpins its decision to maintain the policy rate at its current level.

While no explicit guidance was provided on the direction of future policy moves, we believe the MPC will remain data-dependent, closely tracking trends across inflation, exchange rate movements, and broader macroeconomic conditions.

In our view, if upcoming inflation data continues to show irregular swings, the Committee may prefer to retain the current policy stance until clearer signals emerge. Moreover, global headwinds—particularly the lingering impact of trade restrictions and tariffs—pose additional risks to short- to medium-term stability, which further justifies a cautious policy stance in the interim.

Market Impact
 
Fixed Income: We note that market participants had largely anticipated the MPC’s decision to hold the policy rate and had begun repricing yields downward ahead of the meeting. As such, we do not expect a significant post-MPC decline in yields. Although recent trade uncertainties and weakening oil prices prompted some temporary sell-offs by foreign portfolio investors (FPIs), we believe the direction of domestic monetary policy will remain the dominant driver of yield movements in the short to medium term. We maintain our year-end yield forecast of 18.5% for Treasury bills and 17.0% for FGN bonds, supported by expectations of further easing in inflation and a stable policy environment.

Equities: Despite broadly solid Q1-25 earnings, investor appetite for equities has remained tepid, with the ASI rising just 1.1% since the February MPC meeting (YTD: 6.6% as of 20 May), as the decision to hold rates was widely anticipated and largely priced in. That said, we see potential for improved market performance in Q2-25, supported by expectations of yield moderation, which could spur a rotation into equities. In addition, the recent decline in inflation (-52bps to 23.71% y/y) and signs of currency stability may bolster investor sentiment, particularly among foreign portfolio investors, whose participation stood at 62.7% as of March 2025.

Figure 1: Trend in Monetary Policy Rate, Inflation, NTB, and Bond Yields