Global Macroeconomic Review

United States: The US Federal Reserve made a significant decision to cut its interest rates for the first time in over four years. The key lending rate was reduced by 0.5 percentage points to 4.75% – 5%. The larger-than-expected cut was aimed at supporting a cooling job market and stabilizing inflation. This decision led to a rally in banking stocks, with institutions like Citigroup, JPMorgan, and Capital One seeing gains, although Wall Street ended slightly down.

United Kingdom: The Bank of England (BoE) held interest rates steady at 5% during its September meeting, despite rising inflationary pressures. Core inflation was reported at 3.6% in August, and services inflation surged to 5.6%, intensifying debates over the path forward for monetary policy. Despite calls for easing, only one member of the Monetary Policy Committee voted for a rate cut. Alongside this decision, the BoE announced plans to reduce its government bond holdings by £100 billion over the next year, continuing its monetary tightening efforts…

Domestic Macroeconomic Review

Inflationary Pressures and Monetary Tightening: CBN’s Aggressive Strategy

Nigeria continued to grapple with inflationary pressures despite some moderation in recent months. The Central Bank of Nigeria’s (CBN) Monetary Policy Committee raised the benchmark interest rate by 50 bps to 27.25% in September 2024—its fifth hike this year. While inflation decelerated to 32.15% in August from 33.40% in July, core inflation remained elevated due to rising energy prices and fuel shortages following recent hikes in petrol prices. CBN Governor Yemi Cardoso cited persistent risks, including floods and currency devaluation, as reasons for the rate hike, despite analyst expectations for a pause. The rate hike aims to stabilize the naira, curb inflationary pressures, and attract foreign capital flows. However, with inflation still far above the CBN’s 21% target, the central bank faces the challenge of balancing tight monetary policy with the need for economic growth. Despite concerns over the impact on the equity market, the rate hike is expected to bolster yields in the fixed-income market, providing investors with higher returns…

Market Update

Foreign Exchange Market: In September 2024, the NAFEM market experienced heightened volatility due to limited foreign exchange supply and strong corporate demand. Exchange rates fluctuated between $/₦1,500 and $/₦1,699. The Central Bank of Nigeria (CBN) intervened several times, injecting an estimated $426 million, which helped stabilize rates. Thus, the Naira appreciated by 3.54% M-o-M, with the NAFEX fixing rate closing at $/₦1,541.94, with improved dollar liquidity in the market boosting turnover by 17.34% M-o-M, reflecting a monthly increase of $706.16 million. However, the parallel market saw a 4.01% M-o-M depreciation, with rates closing at $/₦1,687.50. On a positive note, Nigeria’s gross foreign exchange reserves grew by 5.64% M-o-M, adding $2.05 billion to reach $38.35 billion, supported by CBN interventions and improved inflows. Overall, the market remained pressured, but liquidity showed signs of recovery.

Money Market: Interbank market liquidity fluctuated significantly, opening in a credit of ₦579.34 billion and closing in a debit of ₦530.81 billion mid-month before recovering to ₦785.85 billion by the end of the month. Liquidity dips were driven by factors such as OMO auction settlements, remita outflows, TSA debits, and NNPC obligations, which caused rates to spike to as high as 32.25%. However, FAAC disbursements, FGN bond coupon payments, and other inflows provided some relief, pushing rates down to 19% and 25.75% at various points…