Market News

(Bloomberg) -- Nigeria’s central bank sold short-term debt at the lowest yield in more than a year, hardening expectations it is ready to pause aggressive interest-rate hikes when the monetary policy committee concludes its meeting later on Thursday.

The Central Bank of Nigeria sold 704 billion naira ($467 million) of one-year bills at a yield of 18.43%, the lowest since an auction on Jan. 24, 2024, with investors offering to buy 3.26 times the amount of securities on offer.

Yields on the country’s short to long-term debt securities often track the central bank’s rate decisions. Seven of nine economists polled by Bloomberg expect the MPC to leave the key rate unchanged at 27.5% when Governor Olayemi Cardoso delivers the MPC’s decision around 2 p.m. in Abujua, the capital.

Tajudeen Ibrahim, head of research at Chapel Hill Denham, said that the auction result suggests the MPC could tweak a tool it uses to guide liquidity in money markets — called the asymmetric corridor — and leave the policy benchmark where it is.

“It signals the likelihood or the expectation for the MPC to adjust the asymmetric corridor,” said Ibrahim. “The central bank might not bring down interest rate instantly.” The current corridor is plus-500 basis points and minus-100 basis points around the policy rate.

One of the factors the MPC will assess is a steep decline in the annual inflation rate in January to 24.5%, following a revision to how the data is calculated, compared with 34.8% in December according to the old method.

Bloomberg’s Africa economist Yvonne Mhango expects the bank to stand pat and sees “scope for rate cuts as soon as the third quarter of 2025.”

The Central Bank of Nigeria has raised rates by a cumulative 16 percentage points since 2022 to cool decades-high inflation and steady the naira, which has depreciated 70% against the dollar following currency reforms in 2023.

“Nigeria’s rates had become sufficiently restrictive to promote confidence and stability in the naira,” said James Marshall, senior portfolio manager at ProMeritum Investment Management.

The tightening campaign, which picked up pace when Cardoso took office in September 2023, is beginning to yield results. Still, he is unlikely to declare victory as “it’s hard to decipher what the trend of inflation is currently,” Citigroup analyst Katie Kironde wrote in a note.

--With assistance from Simbarashe Gumbo.