Experts See Banks Benefiting From Elevated Interest Rate Environment

The decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to halt further increase of monetary rates has been described as one that will benefit the banks.

According to analysts at FBNQuest, they said the link between MPR and in­terest rates is an impetus for better deals.

“Given that lending rates are closely linked to the MPR, we expect banks to con­tinue to benefit from the elevated interest rate environment in the near term”, they said.

In line with projections, all members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unani­mously voted to hold the bench­mark policy rate at 27.50 percent.

The committee also left the asymmetric corridor of +500/-100 basis points around the MPR un­changed, the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 50 percent, and that of Merchant Banks at 16 percent as well as the Liquidity Ratio (LR) at 30 percent.

Addressing journalists at the end of the two-day meeting of the MPC in Abuja, CBN governor, Mr. Olayemi Cardoso, said the commit­tee was unanimous in its decision to hold rates at current levels.

Cardoso said, “At this meeting, the Monetary Policy Committee noted with satisfaction recent mac­roeconomic developments which are expected to positively impact price dynamics in the near to me­dium term.

“These include the stability in the foreign exchange market with the resultant appreciation of the exchange rate and the gradual moderation in the price of Premi­um Motor Spirit (PMS).

“Members, however, were not oblivious of the risk of persist­ing inflationary pressures driven largely by food prices”.

Analysts at FBNQuest said the decision to keep rates constant was in line with their expectations.

“We had anticipated a hold de­cision because of the moderation in the headline inflation reading to 24.5 percent year-on-year (y/y) in January 2025, from 34.8 percent in December 2024, after the CPI rebasing.

“While members of the com­mittee could have loosened mone­tary conditions in response to im­proved inflation figures, they opted to adopt a cautious policy stance in order to fully evaluate the trajecto­ry of inflationary trend.

“The committee, in reaching this decision, reviewed recent developments in the global land­scape, including the recent aggres­sive tariff sanctions by the US on its key trading partners, which may drive inflationary pressures and hinder economic growth.

“On the domestic front, mem­bers acknowledged the improve­ment in key economic indicators, particularly the moderation in Nigeria’s headline inflation, fol­lowing the CPI rebasing exercise.

“Other notable economic devel­opments include improved crude oil production and a buoyant ex­ternal reserves position.

“Additionally, the committee also acknowledged the sustained efforts of the central bank in sta­bilising the exchange rate market, attributable to improved market li­quidity and FX initiatives.

“Members of the committee commended the recent efforts of the fiscal authorities in improving economic conditions and address­ing persisting challenges in the food sector.”

However, it called for coordi­nated efforts between the fiscal and monetary authorities in ad­dressing inflationary pressures in the country and achieving price stability.

“The CBN governor pointed out that the CPI rebasing method­ology reflects the current pattern of household consumption and reiterated that policy decisions will be determined by future mac­roeconomic data.

“Taking into account the im­proved inflation outlook and the need to support economic growth, the governor also hinted at an im­minent loosening of monetary conditions.

“In terms of implications, the pause in rate hikes is expected to result in lower yields in the fixed-income market, driven by market expectations of possible rate cuts in the upcoming MPC meeting.

“Post-MPC decision, the sec­ondary market was predominant­ly bullish, with the average yields of treasury bills and bonds declin­ing to 20.21 percent and 19.79 per­cent, respectively, from pre-meet­ing yields of 21.96 percent and 19.92 percent.

“Despite the notable activity in the short-to-mid end of the curve, we expect a gradual flattening as investors shift towards long-dura­tion instruments to hedge against potential rate cuts and yield reduc­tions.

“We anticipate a mild reaction in the stock market. However, low­er market yields may likely lead to the reallocation of funds into equities on the back of promising performance in key sectors”.