Naira strengthens ahead of MPC meeting

The Monetary Policy Committee of the Central Bank of Nigeria is gearing up for its first meeting of the year this week. Analysts are closely watching the rebased inflation figures which stood at 24.48 per cent year on year in January 2025, expecting a moderation in inflation rates and continued stability of the naira to influence market sentiments. Olatomiwa Maiyegun, a Trader in Structured Products and Origination – Global Markets at Stanbic IBTC, shared insights on the current market dynamics and predictions for the upcoming MPC decision. Maiyegun expressed surprise at the sharp drop in the inflation figures, mentioning that while a decline was anticipated, the extent of the decrease caught many off guard. The market immediately reacted to the news, with securities and fixed income instruments rallying, albeit with more significant movements in the fixed income space compared to money markets. The stability of the exchange rates has also been a notable outcome following the inflation data release. Investors are now eagerly awaiting the MPC decision on Thursday to assess the potential impact on their strategies. The conversation then shifted to the potential effects of interest rate changes on foreign portfolio investments (FPI) in Nigerian securities. Maiyegun highlighted that investors have shown comfort with yields around 23-24 per cent, emphasizing the importance of stability in exchange rates. The discussion also touched on the performance of the Naira, noting recent interventions by the central bank to support the currency amidst a slight depreciation trend. The influx of foreign direct investments has played a crucial role in bolstering the Naira's position within the market. Looking ahead to the MPC decision, analysts are speculating on the possibility of a rate cut by mid-year, with a keen eye on inflation trends and credit accessibility for local businesses. Maiyegun emphasized the need for a comprehensive view of economic indicators before making decisions on interest rate adjustments. Expectations for the upcoming meeting include continued reforms on FX regulations and enhancements in transparency to sustain market liquidity. While immediate rate cuts may not be on the horizon, the possibility of adjustments in the future remains open. As the date of the MPC meeting approaches, market participants are bracing for potential outcomes that could shape investment strategies in the coming months.