Market News

 By : Collins Olayinka (Abuja) and Helen Oji (Lagos)

• Petrol imports have reduced amid production hiccups • ‘Decision necessary to prevent capital outflows, FX Pressure’ • Naira firms up to 1,598.72/$1

New fiscal policies to boost local production, reduce foreign currency demand pressures and lessen the pass-through effect on prices received attention yesterday, as the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), at its 300th meeting, held the policy rate at 27.5 per cent.

The decision was informed by the need to firmly anchor the inflation rate, which slowed to a near two-year low last month, and prevent possible capital outflow, especially with the current uncertainty and derisking.

The monetary authority is cashing in on fiscal support to increase foreign exchange (FX) inflow to stabilise the naira, which firmed up yesterday after weeks of lacklustre performance.

But with the international oil market yet to recover from the tariff jitters, there is little the fiscal authority could do, in the short term, to increase FX earnings.

But perhaps, with appropriate policies and consistent commitment to economic reforms, capital inflow may continue to improve to increase the supply of FX.

Indeed, the indicators are promising. For the first time in about a decade, foreign participation in the stock market rose to lead activities in March.

Speaking at the end of the meeting, the CBN Governor, Yemi Cardoso, admitted that underlying inflationary pressures are chiefly driven by high electricity prices, persistent foreign exchange demand pressure and other legacy structural factors.

Given the relative stability observed in the FX market, the MPC urged the CBN to sustain the ongoing reforms to further boost market confidence while calling on the fiscal authority to strengthen current efforts at enhancing foreign exchange earnings, especially from gas, oil and non-oil exports.

Cardoso warned that the unpleasant recent decline in crude oil prices, attributable to increased production by non-OPEC members as well as uncertainties associated with U.S. trade policy, are developments that would present new challenges for fiscal receipts and budget implementation.

According to the CBN chief, holding the parameters at this time will allow the apex bank to study emerging developments to develop appropriate policy measures to mitigate new challenges in the economy.

According to the CBN chief, holding the parameters at this time will allow the apex bank to study emerging developments to develop appropriate policy measures to mitigate new challenges in the economy.

Though the journey may seem rough right now, Cardoso insisted that the trajectory Nigeria is travelling remains the best path, saying: “The overall trajectory is in the right direction. Not one particular aspect of managing the economy is a bullet that will solve all the problems. There is none. ”

For Nigerians who are eager to see a N1000/$, Cardoso does not have good news for them. He declared that the naira was passing through rough patches that other currencies around the world are experiencing.

“We find that, relative to other countries, Nigeria came out very well. We were able to ensure that our depreciation was very modest and that the stability was pretty much there. That, in my view, was a reflection of a lot of the measures that we had taken before this time to stabilise our economy. I just say that if those actions had not been taken when they were, the results would have been a lot more disastrous,” he explained.

He confirmed the healthy status of the net reserves, saying the growth is a result of transparency in the process and ongoing reforms, which are giving confidence to many players in the industry.

He stated that the CBN is determined to ensure that Nigeria has sufficient buffers beyond the IMF six-month input cover to ensure that it continues to keep its economy in a safe and sound mode.

Cardoso confirmed that fuel importation has indeed gone down, paying glowing tributes to Dangote refineries and other national refineries that are presently on stream, adding that gas exports have also been on an upward trajectory.

He noted that Nigeria now exports gas resources because of the competitiveness of the naira in the exchange market, saying: “The opportunity to extend that fragment into our sub-region is also an enormous opportunity now that we have such a competitive currency.”

On the expected impact of the ongoing trade tariffs on Africa, Cardoso implied that the recently launched ‘Non-Resident Bank Verification Number (NRBVN)’ is a part of the policies aimed at broadening remittances with a monthly target inflow of one billion dollars.

He described the initiative as a game-changer, adding: “It is something that the diasporas have been waiting for, and now that they are going to be able to transact their business from overseas relatively seamlessly, the opportunity for them to invest in the country of their birth is now limitless.”

While calling on the banks to strengthen their know-your-customer (KYC) protocols, Cardoso maintained that the banking system must bridge the trust deficit currently in existence in the payment system and get into the Financial Action Task Force (FATF) list.

In focusing on inward remittances, the CBN chief disclosed that the apex bank is working with international money Transfer Operators (MTOs) to introduce products that appeal to Nigerians in the diaspora.

He added: “With the result that the banks are coming up with innovative products to encourage the diasporans out there. Many banks have always wanted to do this for some time. I guess there were bottlenecks in between that prevented them from embracing this opportunity.

“So now that that has been clear, they have committed to ensuring that they can put out products that will suit the diaspora in the way they want.” An investment banker, Tolulope Alayande, said maintaining the rate is the only option available now.

“In our last conversation, I argued why it is unwise for the MPC to tamper with the rates now, considering global headwinds and the winds of tariffs between the United States and China. Through this path, the CBN has ample time to examine global trends in the next two months before the next MPC meeting in July,” he stated.

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In his reaction, the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, who earlier predicted a hold, commended the MPC’s decision to retain the MPR at 27.5 per cent, describing it as a welcome and pragmatic move.

According to Yusuf, the monetary environment in Nigeria is already sufficiently tight, and further tightening would have been counterproductive.

“The decision is consistent with the expectations of many analysts. I see it as a positive development because the monetary conditions in the economy are already very restrictive,” he said.

He pointed out that the cash reserve ratio (CRR) and the asymmetric corridor have already put significant pressure on the financial system, thereby escalating the cost of funds for businesses.

Further tightening was not an option, he said, maintaining that the current rates are a tolerable approach, especially in the face of heightened uncertainty in the global economy.

He explained that the global economic environment remains fragile, with the full impact of the trade disruptions between China and the United States yet to fully materialise.

“The current calm is only a temporary pause. Many trading partners are still grappling with the implications, which extend to commodity prices and capital flows,” he explained.

Yusuf emphasised that the risks posed by these global dynamics could affect Nigeria’s macroeconomic stability, particularly through their effects on crude oil prices, capital movement, and imported inflation, especially for businesses that rely on U.S. imports.

He added that the MPC’s decision reflects a cautious and strategic approach to monetary policy.

“This is not the time for easing. It is time to carefully assess the full impact of global disruptions on the domestic economy. The vulnerabilities Nigeria faces are largely external, and navigating the next couple of months with policy stability is a reasonable course of action,” he said.

On his part, the Executive Director of Halo Nigeria Capital Management Limited, Dr Paul Uzum, described the decision as a prudent move, especially given the current macroeconomic vulnerabilities.

According to Uzum, although inflation is beginning to moderate, lowering interest rates at this stage could pose serious risks to the financial system.

His words: “A rate cut could prompt capital flight, with local portfolio investors shifting their funds toward more stable U.S. dollar-denominated Eurobonds. Such a shift, he noted, would likely increase pressure on the exchange rate and could undermine recent gains in currency stability.”

He also highlighted broader external risks, including the ongoing global tariff war and the downward trend in crude oil prices, both of which continue to threaten Nigeria’s economic outlook.

Nevertheless, Uzum believes that if the trend of declining inflation persists over the next two to four months, the CBN may begin to consider easing monetary policy. For now, however, holding rates steady is seen as a necessary measure to safeguard capital flows and maintain macroeconomic stability.

Professor of banking and finance at the University of Nigeria, Chude Nwude, equally raised concerns over Nigeria’s persistently high interest rate, stressing that the country’s economic challenges stem largely from its weak production base and policy choices that discourage investment in the real sector.

He argued that Nigeria is yet to evolve into a truly productive economy, and the interest rate, currently at 27.5 per cent, is acting as a deterrent for potential producers and investors.

In his view, the cost of capital remains prohibitively high, limiting the growth of domestic industries and reducing the competitiveness of local goods, both for export and domestic consumption.

The professor emphasised that sustained economic growth and currency stability can only be achieved through the large-scale production of essential goods and services.

He called for a review of the monetary policy stance to make interest rates more supportive of productive activities.

Apart from holding the MPR at 27.5 per cent, MPC also retained the asymmetric corridor around the MPR at +500/-100 basis points, retained the CRR of commercial banks at 50 per cent and that of merchant banks at 16 per cent, while retaining the liquidity ratio at 30 per cent.

In the meantime, the naira has staged a rebound in the foreign exchange market, gaining 0.46 per cent week-on-week against the dollar.

Naira closed at N1,598.72/US$1 last week, marking a rebound after three weeks of consistent declines.

The one-month forward rate closed at N1,636.05/$1, signifying an optimistic view of the local currency. The three-month forward contract rate closed at N1,700.59/$1.

At the parallel market, the naira remained stable at about N1,625/$1 last Friday.

The NAFEM window recorded an inflow of $914 million compared to $619 million in the previous week, an increase of 47.66 per cent week-on-week.