The US Federal Reserve cut its benchmark interest rate by 0.25 percentage points last week, bringing its rate to 4–4.25 percent, the lowest since 2022. This move is expected to drive yield-hungry foreign investors toward emerging markets like Nigeria, as capital flows seek more attractive returns.
Following the decision, Nigerian stocks and bonds have seen mixed but overall positive reactions, with analysts weighing in on what the Fed’s action means for the local economy and the upcoming Monetary Policy Committee (MPC) meeting.
Are Nigerian stocks and bonds rallying?
After the rate cut on Wednesday, the Nigerian All Share Index (NGX-ASI) edged up by 0.19 percent on Thursday. However, it turned bearish on Friday after the release of unimpressive bank half-year returns.
The bond market saw bullish sentiments. Average T-bill yields declined to 18.48 percent from 18.78 percent the previous week, reflecting investors’ renewed interest. Similarly, the bonds’ secondary market closed bullish, with average yields falling to 16.59 percent from 16.67 percent the previous week.
T-bills secondary market maintained its bullish sentiment, with the average yield easing slightly by 3bps to 18.43 percent (from 18.46percent).
The naira, which initially weakened to N1,494.01/$, later saw some gains, closing at N1,487.90/$ by Friday.
Expectations of stronger demand prospects in the U.S. after the Fed’s rate cut this week led to crude oil prices ticking higher this week, with Brent at $66.73, up by 1.29 percent.
Bismarck Rewane, CEO Financial Derivatives Company, said that the price of oil is good for us at $67 per barrel; all things being equal, we expect no shocks, no surprises in the global market, only slightly lower oil prices at the end of the year.
If the price of oil drops to $62-63 levels, for Nigeria, it means that the price of petroleum refined products will decline, but revenue will also decline. which means the federal government and the state government will have to borrow more to fund the budget.
“ If they borrow more, we expect that the Central Bank (CBN) of Nigeria will follow suit with the Fed at their meeting next week, and therefore the cost of borrowing by the government will come down marginally.”
“The interconnectedness between the global markets and Nigerian policies has never been more integrated than now,” Rewane said.
How will the Fed’s cut influence the MPC’s rate decision
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) convenes today for a two-day meeting to decide on its fourth interest rate policy decision of the year, with the outcome expected by early Tuesday afternoon.
“Since the last MPC meeting in July, there have been positive developments both internationally and domestically that support a more accommodative policy. A key external factor is the US Federal Reserve’s resumption of rate cuts, which has eased global monetary conditions,” CSL Stockbrokers said in a report today.
The analysts at CSL said that the Fed’s move reduces the risk of capital flight from emerging markets like Nigeria and gives the CBN greater flexibility to lower rates without triggering sharp outflows from foreign portfolio investors.
“Moreover, we note that the Fed’s dovish pivot also signals a broader decline in global borrowing costs, which could help Nigeria manage its external financing needs more comfortably,” it said.
Rewane said that if Nigeria’s interest rate is cut by 25 basis points too, the interest rate differential is in favor of Nigeria; therefore, two things will happen: the naira will strengthen, the cost of borrowing will come down, and Nigeria will be able to raise additional money.
Abdulrauf Bello, portfolio manager of Cowrywise, believes that the MPC should hold off on a rate cut.
“The Fed cut was small, not enough to stoke anything, and the market already priced it in. The CBN will not be swift to adjust anything simply because of a quarter-point rate cut,” Bello said.
Hakeem Muhammed, executive director of FSDH, shares the same sentiments. He said that Foreign investors are acutely sensitive to Nigeria’s interest rate differentials compared to global markets.
“A sharp cut could trigger capital outflows at a time when the naira is only beginning to find its footing. Moreover, structural drivers of inflation like energy costs, logistical gaps, and food supply shocks have not fully abated, meaning that inflationary risks remain in the medium term,”
“The bulk of monetary easing, however, should be delayed until next year, once the Naira’s stability proves more sustainable and inflation moderates even further. By sequencing its policy steps carefully, the MPC can strike the right balance – supporting the economy without jeopardizing hard-won relative price stability,” Muhammed said.
