FSDH Merchant Bank Group has urged investors to focus on FX-resilient and yield-sensitive assets as Nigeria’s macroeconomic stabilisation gradually translates into investable opportunities.
In its latest economic note released on Tuesday, the research arm of the bank said investment opportunities remain concentrated in FX-resilient sectors, yield-sensitive instruments and firms with strong balance sheets, noting that strategy should prioritise disciplined risk pricing, capital preservation and alignment with policy direction as stabilisation matures into sustainable growth.
According to the report, Nigeria’s 2026 outlook is cautiously constructive, with the focus shifting to consolidation rather than acceleration. Real GDP growth is projected within the 3.6–4.0 percent range, supported by the fading impact of petrol subsidies and the economy’s adjustment to FX shocks, although structural constraints are expected to continue limiting growth momentum.
Inflation is forecast to moderate to between 14 and 17 percent, contingent on sustained FX stability and contained energy costs. While the disinflation path is expected to be gradual, the direction supports a measured monetary easing cycle over the course of 2026. Policy rates are likely to remain sticky in the early part of the year, with markets increasingly pricing stability directly into yields.
Yield conditions are expected to ease modestly even without aggressive rate cuts, as macroeconomic predictability improves. The exchange rate is projected to trade broadly within the N1,440 to N1,540 per dollar range, supported by external reserves estimated at between $40 billion and $45 billion, alongside sustained portfolio inflows. However, key risks remain, including FX slippage, policy inconsistency, election-related uncertainty and renewed supply-side shocks.
The report noted that Nigeria’s macroeconomic narrative has shifted decisively towards stabilisation, driven by FX reforms, tight monetary conditions and improved external balances, which have reduced volatility and helped restore investor confidence. Despite these gains, persistent inflation and weak transmission to the real sector continue to constrain broad-based growth. Against this backdrop, FSDH maintained that investment opportunities remain skewed towards FX-resilient sectors, yield-sensitive instruments and corporates with strong balance sheets, underscoring the need for disciplined risk pricing, capital preservation and close alignment with policy signals.
Nigeria’s real GDP expanded by 3.8 percent in the first nine months of 2025, up from 3.2 percent over the same period in 2024, supported by improving quarterly momentum. Growth accelerated from 3.1 percent in the first quarter of 2025 to 4.2 percent in the second quarter, before moderating slightly to 4.0 percent in the third quarter. While this trend points to a firmer recovery, the report cautioned that growth remains vulnerable to sector-specific constraints and elevated cost pressures.
The report highlighted that Nigeria’s growth continues to be services-led, with the Services sector expanding by 4.1 percent in the first nine months of 2025 and accounting for 58.8 percent of GDP. Within the sector, Financial and Insurance activities grew by 16.8 percent, driven largely by monetary tightening, balance-sheet repricing and FX-related valuation effects. Transport and Storage expanded by 14.7 percent, reflecting gradual adjustment to fuel subsidy removal and FX reforms, while the ICT sector recorded growth of 6.6 percent. Real Estate expanded by 3.9 percent, supported mainly by nominal price effects. In contrast, Trade, which accounts for 19.1 percent of GDP, grew by just 1.7 percent, reflecting weak household purchasing power.
“Nigeria’s 2025 growth profile shows improving momentum but remains narrow, concentrated in services and extractive activities, with limited progress in manufacturing-led or broad-based transformation,” the report said.
Inflation moderated steadily through 2025, with headline inflation averaging 21.0 percent in the first 11 months of the year, down sharply from 33.2 percent in 2024. Headline inflation eased from 24.5 percent in January to 14.5 percent in November, driven primarily by improved FX stability rather than direct price compression from monetary tightening. While elevated policy rates had limited immediate pass-through to domestic prices, they played a critical role in attracting capital inflows, improving FX liquidity and stabilising the exchange rate, thereby moderating imported inflation.
FX market conditions improved significantly in 2025, supported by policy reforms, tight monetary conditions and easing structural FX demand. The naira traded at an average of N1,518.9 to the dollar during the year, while the end-period rate appreciated to N1,451 per dollar, from N1,535.8 per dollar at the end of 2024. FSDH said this trend reflects a more orderly price discovery process rather than administrative intervention.
High interest rates supported portfolio inflows, improved FX liquidity and reduced volatility. External buffers strengthened, with FX reserves rising to $45.2 billion in 2025 from $40.9 billion in 2024. Structural demand pressures also eased, notably due to the full operation of the Dangote Refinery, which reduced petroleum product imports and lowered FX outflows. Improved FX stability enhanced planning certainty, reduced hedging costs and supported disinflation, although exposure to external shocks remains.
The report added that monetary policy remained restrictive through most of 2025, with the Central Bank of Nigeria prioritising disinflation and FX stability over near-term growth. The Monetary Policy Committee held policy parameters unchanged across the first three meetings of the year, keeping the Monetary Policy Rate at 27.5 percent, alongside tight liquidity and reserve conditions.
A cautious recalibration emerged later in the year, with the MPC cutting the policy rate by 50 basis points to 27.0 percent, adjusting the standing facilities corridor and reducing the cash reserve ratio for commercial banks to 45 percent, while imposing a higher CRR on non-TSA public sector deposits. Subsequent corridor adjustments reinforced the CBN’s preference for liquidity control rather than a rapid easing cycle.
Transmission conditions remained tight, with credit to the private sector declining from N78.0 trillion in December 2024 to N72.5 trillion by September 2025, reflecting the combined impact of high policy rates and elevated reserve requirements. Lending rates remained elevated, with prime lending rates around 18–19 percent and maximum lending rates close to 30 percent. As inflation moderated, real interest rates turned positive, strengthening demand for naira assets and reinforcing portfolio inflows and FX stability. FSDH said policy conditions appear to have reached peak restrictiveness, but any easing cycle in 2026 is likely to be gradual and conditional, anchored primarily on FX stability rather than growth support.
