The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) opted to hold the Monetary Policy Rate (MPR) at 27.00% at the final meeting of the year, defying expectations of further rate cuts following the 50bps reduction at the September meeting. The committee highlighted that despite the consistent disinflationary trend seen over the past seven (7) months, inflation remains above desired levels, necessitating the need to consolidate on gains seen so far to further cool inflationary pressures.

The central bank also retained the Cash Reserve Ratio (CRR) for Commercial Banks at 45.00% and 16.00% for Merchant Banks while the 75.00% CRR on Non-TSA public sector deposits and the 30.00% liquidity ratio was maintained. However, the asymmetric corridor around the MPR was adjusted from +250/-250bps to +50/-450bps in a bid to strengthen liquidity management following record placements by banks at the SDF window after the initial adjustment. This now takes the SDF rate to 22.50% from 24.50%, while the SLF rate decreased to 27.50% from 29.50% after the decision. 

Looking ahead, we maintain our outlook for positive momentum in the local debt market, as we expect yields to decline from current levels. We highlight that yields have experienced a resurgence in recent trading sessions following the outcome of the MPC meeting in late November. The most recent NTB primary market auction also showed this bias, as stop rate on the 364-day bill jumped by 146bps to 17.50%. However, we expect this trend to be short-lived based on ample system liquidity and lower inflation expectations. Thus, we envisage a moderation in average yield across the benchmark curve at the end of December.

Kindly find HERE, the full report, covering our analysis and considerations.