The Federal Reserve and Bank of England have reduced interest rates to balance inflation and labor market stability. Meanwhile, Nigeria’s inflation rate remains volatile due to fuel prices, currency depreciation, and agricultural disruptions. The Nigerian stock market shows mixed sentiment, with cautious investors eyeing economic challenges and policy shifts. The article explains the latest global interest rates, Nigeria’s inflation and market performance updates, and how central banks navigate economic growth and stability.
The Federal Reserve Bank in the United States has reduced interest rates by 25 basis points (bps) to a range of 4.50% to 4.75%. This decision aims to balance inflation management with labor market stability. In September, inflation decelerated for the sixth consecutive month, reaching 2.40%, the closest to the Fed’s 2.00% target in over a year. Given stable labor conditions and a focus on economic support, the Fed is expected to maintain this dovish stance in upcoming meetings.
The Bank of England has also reduced its benchmark interest rate by 25 bps to 4.75% in the UK, marking its second cut this year.
In Sub-Saharan Africa, Ghana’s inflation rate increased for the second consecutive month in October 2024. A weakening cedi and higher food and non-food price indices drive this rise. The Bank of Ghana is expected to adopt a cautious approach in its upcoming meeting while closely monitoring inflationary pressures.
Nigerian Economy
Nigeria’s inflation rate has experienced significant fluctuation in 2024, primarily due to rising fuel prices, currency depreciation, and agricultural disruptions. Despite the Central Bank’s rate hikes and the government’s zero-duty import policy, structural issues such as supply chain inefficiencies and security concerns have limited their effectiveness. Inflation reached 30-year highs in March, peaking at 33.2%, driven by rising food and transportation costs, insecurity, and flooding in food-producing regions. By mid-2024, inflation peaked at 34.19% in June, slightly moderating in July and August.
However, inflation climbed to 32.7% in September due to high food costs, widespread flooding, and ongoing currency pressures. Food prices have significantly affected the overall inflation rate, with food inflation rising to 37.77%. Core inflation, which excludes food and energy prices, slightly eased for the first time in ten months, declining from 27.58% in August to 27.43% in September. A reversal will likely take place in October following recent developments in Nigeria.
The World Bank has approved a $50 million fund for Nigeria’s Accelerating Nutrition Results in Nigeria (ANRiN) Project 2.0, which aims to address nutrition challenges in the country. This initiative aligns with the World Bank’s crisis response framework and complements Nigeria’s N-774 Initiative. Successful implementation could improve healthcare and welfare in Nigeria.
Additionally, the Presidential Compressed Natural Gas Initiative (PCNGi) has attracted over $200 million in investments, converting more than 100,000 vehicles to compressed natural gas (CNG) and establishing 140 conversion centers. This initiative aims to reduce dependence on petrol, potentially saving Nigeria $3 billion annually and adding $2 billion in revenue over the next few years.
The Central Bank of Nigeria (CBN) has also issued guidelines for a nine-month Voluntary Currency Disclosure, Depositing, Repatriation, and Investment Scheme, allowing individuals and businesses to deposit foreign currency into designated domiciliary accounts without scrutiny. This scheme could enhance liquidity in Nigeria’s foreign exchange market, contributing to a more stable exchange rate environment.
Money Market
The CBN offered N513.43 billion in Treasury bills with stop rates of 18.0%, 18.50%, and 23.00%, up from 17.0%, 17.50%, and 20.65% in the previous auction. The subscription-to-offer ratio remained at 1.31x. The secondary fixed income market showed mixed results, with the average yield on T-bills rising to 23.90%, while bond yields dropped by ten bps to 19.40%.
The average yield on the Nigerian Eurobond market fell from 9.70% to 9.40% last week due to sell-offs across all instruments as investors sought greater premiums. Although some maturities may experience bearish patterns due to short-covering activity, we expect generally bullish performance going forward.
Equities Market
The Nigerian stock market exhibited mixed sentiment, with a slight decline in the All-Share Index (ASI) and fluctuating trading patterns across various sectors. Investors remained cautious due to economic challenges and policy shifts by fiscal and monetary authorities. The market capitalization also decreased, with the ASI closing at N58.92 trillion, erasing N118.40 billion from investors’ portfolios. However, year-to-date, the ASI has posted a return of 30.04%.
The broader market saw more decliners than gainers, with 42 stocks losing value compared to 31 gainers. Some sectors performed well, such as the NGX-Oil & Gas sector, which gained 5.43%, and the NGX-Banking sector, which rose by 2.81%. The NGX-Insurance and NGX-Consumer Goods sectors also saw marginal gains. The market activity demonstrated high and low momentum across stocks of varying capitalizations. Top weekly advancers included EUNISELL, JOHNHOLT, CONOIL, SOVRENINS, and CONSOLIDATED HALLMARK INSURANCE, while top decliners included ABBEYBDS, DEAP CAPITAL, TANTALIZER, MEYER, and ETERNA.
This week, the Nigerian equities market experienced a bearish trend, with the NGXASI dropping 0.20% week-on-week to settle at 97,236.19 points, bringing the year-to-date performance to +30.04%. This decline was attributed to stock sell-offs like MTNN, OANDO, GTCO, and TRANSCORP. However, performance was mostly positive across sectors, with NGXOILGAS, NGXBNK, NGXCNSMRGDS, NGXINS, and MERI-AGRIC closing higher.
Conclusion
The National Bureau of Statistics is set to release the monthly inflation report for October, with an expected Consumer Price Index (CPI) of 33.10%. This report is influenced by recent adjustments to petroleum motor spirit (PMS) pump prices, flooding, and reversals in the food index due to supply chain disruptions and insecurity. The core index may remain high unless fiscal authorities address the elevated PMS prices and mitigate supply scarcity.
The Monetary Policy Committee (MPC) of the CBN has implemented tightening measures, raising the Monetary Policy Rate to 27.25% and increasing the Cash Reserve Ratio for deposit money banks to 50% and 16%. However, structural challenges, such as inadequate infrastructure, high fuel costs, and logistical constraints, limit the effectiveness of these measures.
The upcoming week is likely to evoke mixed emotions due to portfolio rebalancing. Despite a short-term recovery, market sentiment remains cautious because of inflationary pressures and currency volatility. The release of October’s CPI data could further influence sentiment, leading investors to focus on reliable equities and reassess the overall economic situation.
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