Analysts Speak on How MPC Decisions Will Shape Nigeria’s Financial Markets in Q2,2024

Nigeria’s first quarter 2024 was marked by significant macroeconomic developments. Headline inflation rose to 31.70%, as food inflation climbed to 37.92 %.

In the same vein, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) increased the monetary policy rate in February and March 2024 by 600 basis points, from 18.75% to 24.75%, in its first two meetings of the year. 

This was in line with Mr. Yemi Cardoso’s inflation-targeting measures as the new CBN Governor. Analysts are still unsure how the CBN’s new stance would affect financial markets.

Mr. David Adonri, a stockbroker with HighCap securities and market analyst, has noted that the equities market appreciated by over 4.3% in March 2024, while the year-to-date (YTD) performance showed that it had grown by over 39%. He said this was better than the market’s performance for 2023.

According to Adonri “Equities surprised investors in Q1 2024 as the ASI crossed 100,000. Despite the disappointing full year results of many listed companies, the market remained resilient and moved upwards steadily. Not even the contractionary monetary policy of the CBN succeeded in slowing down the market”

Looking at Q2,2024 he believed that the factors that propelled the equities market in Q1 may be absent in Q2. 

“The migration of financial assets to debt which has increased due to recent rise in the monetary policy rate (MPR) and the proposed recapitalization of banks may eventually halt the market rally in Q2 2024,” he added. 

Concerning the Fixed Income market, Mr. Oladipo Ajayi, Head, Fixed Income Desk, Chapel Hill Denham, described the performance of the market as bearish during the quarter, as the Debt Management Office (DMO) showed a hawkish stance with aggressive borrowing in Q1, 2024.

The debt analyst said, “The upside movement in yield was supported by the conservative policies of the monetary policy authorities. The Central Bank of Nigeria was very active in the open market operations (OMO) market for major part of the quarter and the discount rate climaxed at 21.5% with an effective yield above 27%.”

Giving his outlook for the Nigerian fixed income market in Q2,2024, Ajayi expects a moderation in Q2, 2024 as the impact of the aggressive stance of monetary policy managers from Q1, 2024 sets in. He added “We expect yields to fall as the inflow of foreign portfolio investors push yields down.”