Economy
MPC to Maintain Status Quo on Policy Variables Despite Falling Market Rates
By Afrinvestor Research
Since we released our Pre-MPC Note last week, two major developments have surfaced in the global and domestic scene with potential impacts on domestic market condition and near term outlook for monetary policy.
Whilst we consider these events important talking points as the Monetary Policy Committee (MPC) convenes next week (tomorrow) to deliberate, our expectation of the outcome of the meeting remains unchanged as we anticipate committee members to overwhelmingly vote to retain policy rates at current levels.
The first major development is the outcome of the US Fed policy meeting which held midweek. Dismissing the deceleration in US inflation rate below the 2.0% target since the start of the year as a “mystery”, the US Fed Chairman, Janet Yellen, guided on one additional rate hike in 2017 and three more in 2018 in addition to measures to begin slowly reducing the Fed’s US$4.5tn balance sheet.
Although the slightly hawkish statement of the US Fed caught many by surprise, markets’ reaction has so far been calm against the backdrop of the strong and synchronized global growth expansion as well as effective use of forward guidance communication by the Fed to guide on a policy path.
Thus, US equity markets, which have been on a tear this year, traded flattish on Wednesday and Thursday, although yields have risen on US bonds and Emerging Market sovereign and corporate Eurobonds. Nonetheless, we do not expect the MPC to respond as the likelihood of a large-scale capital flow reversal from emerging markets remains low as long as the US Fed sticks to its guided gradual tightening path whilst other major central banks’ policy outlook remains broadly accommodative.
Contrarily, we consider the recent developments in the domestic scene more significant to the MPC’s discourse next week. Over the last three weeks, rates have been dropping sharply in the Treasury Bills market in response to possible near term easing of monetary policy as well as reduction in supply of longer dated bills since CBN stopped offering 364-day bills at its OMO auctions.
Consequently, we have observed a bull flattening pattern (i.e. longer term rates falling faster than shorter ones) at primary and secondary market for Treasury Bills as investors aggressively position in longer-dated bills.
At the PMA held mid-week, the 364-day stop rate fell to 17.0%, 152bps lower than the August 30th Auction stop rate, compared to a 15bps and 56bps drop in 91-day and 182-day papers respectively.
As demand increases relative to supply, secondary market rates on T-bills have also declined across tenors, down 134bps M-o-M as of market close today. The bullish sentiment in the fixed income market is also noticeable in the bond market where yields have dropped 74bps on average M-o-M across benchmark bonds to 16.2%. Given market sentiments are often leading indicators of policy rate changes, we expect the MPC to take notice of recent movements in the yield curve.
However, as we noted in our Pre-MPC note last week, we believe MPC would maintain status quo on all rates next week given the need to consolidate gains on stabilizing FX and inflation rates. Our expectations are based on the following considerations:
Price level remains sticky as high base effect thins out: the National Bureau of Statistics (NBS) Inflation report for August released today indicated Headline inflation marginally decelerated 3bps to 16.01% Y-o-Y from 16.04% in July. M-o-M CPI growth have remained elevated since the start of the year against the backdrop of a food price pressure which took Food Inflation to an all-time high of 20.3% in July 2017. With the economy now running out of high base effect driven moderation in headline inflation, our model projects inflation rate will rise for the first time since the start of the year in September. Given supposed price-anchored monetary policy regime, the MPC is not likely to cut benchmark rate in a period of rising inflation expectation.
MPR has become a less effective Monetary Policy Tool: the case for easing via benchmark rate reduction becomes weaker if the current disparity between the benchmark rate and short-term fixed income yields is taken into consideration. Although the recent bullish streak in the fixed income market has narrowed this spread, it is not enough to justify a cut in interest.
While our medium term outlook favours a gradual monetary easing, we believe the stabilization of the FX market is paramount to achieving monetary policy objectives. The FX market, despite improvements recorded so far in the year, is still in a fragile state as the CBN is yet to harmonize all rates at the official market. As such, in the event that a unified rate is not achieved, monetary easing poses a threat for FX stability. Furthermore, the current realities of Nigeria’s budget deficit, suggests the need for the fiscal authorities to continuously fund this disparity which current tightening stance enhances; though at a higher cost to government.
In light of the above, the more rational decision we foresee the MPC making is to maintain status quo and continue to consolidate on gains in the FX market. Hence, we believe the outcome of the 5th MPC meeting would be to; retain the MPR at 14.0%; retain the CRR at 22.5%; retain the Liquidity Ratio at 30.0%; and retain the Asymmetric corridor at +200 and -500 basis points around the MPR.
By Adedapo Adesanya
The Central Bank of Nigeria (CBN) has moved to tighten credit discipline across the banking sector, directing all financial institutions to deny additional loans and banking facilities to large borrowers whose existing loan obligations are classified as non-performing.
The directive, issued in a circular dated March 12, 2026, was signed by Mrs Olubukola Akinwunmi, Director of Banking Supervision, and addressed to all deposit money banks operating in the country.
Under the new policy, any borrower whose loan facility is recorded as non-performing in the Credit Risk Management System (CRMS), the CBN’s centralised credit database, or flagged by any licensed private credit bureau, will be immediately ineligible for new credit.
The measure takes effect without transition, applying across all banks simultaneously.
The apex bank’s restrictions extend beyond direct lending. Affected borrowers will also be denied access to contingent banking facilities, including bankers’ confirmations, letters of credit, performance bonds, and advance payment guarantees, instruments commonly used in trade finance and large-scale commercial transactions.
Banks have additionally been directed to obtain further realisable collateral from affected obligors to adequately secure their existing exposures.
The apex bank did not specify a timeline within which this additional collateral must be obtained.
The CBN defines large-ticket obligors as borrowers whose combined exposures across all banks exceed the Single Obligor Limit, or whose outstanding obligations materially affect a bank’s Capital Adequacy Ratio (CAR) or otherwise pose systemic risks to the broader financial system.
The policy is grounded in Clause 3.2(d) of the Prudential Guidelines for Deposit Money Banks.
The identification of such obligors will be based on data captured in the CRMS and reports from licensed private credit bureaus, according to the circular.
In issuing the directive, the CBN cited the heightened risk that large non-performing obligors pose to individual banks and the wider financial system.
The regulator stated that the new framework is designed to limit contagion risks and reinforce responsible lending practices across the sector.
The move reflects a broader regulatory effort to address the rise in non-performing loans (NPLs) within Nigeria’s banking sector and to ensure that institutions with significant credit exposures to distressed borrowers are not further endangered by extending new facilities to the same counterparties.
Compliance is expected from all deposit money banks with immediate effect.
The CBN did not outline specific sanctions for non-compliance in the circular, though supervisory penalties under the Banks and Other Financial Institutions Act (BOFIA) 2020 would ordinarily apply.
By Aduragbemi Omiyale
The presidential candidate of the Labour Party (LP) in the 2023 general elections, Mr Peter Obi, has blamed the federal government for the high energy costs in Nigeria.
In a post, the former Anambra State Governor said if the central government, led by President Bola Tinubu, had planned for the future, Nigerians would not be paying through their nose for premium motor spirit (PMS), otherwise known as petrol, and Automotive Gas Oil (AGO), also known as diesel.
Disruption in the supply of crude oil on the global market has caused consumers to pay more for petrol and diesel in the country.
The United States and Israel waged war against Iran, killing its Supreme Leader, Ayatollah Ali Khamenei, about two weeks ago in airstrikes.
This has triggered tension in the Middle East, with Iran firing missiles at its neighbours, and closing the Strait of Hormuz, a small water path between Iran and Oman, where one-fifth of global crude oil supply passes through.
Before the crisis, PMS was selling at N835 per litre and crude oil was below $90 per barrel. But oil rose above $100 per barrel, causing the price of petrol in Nigeria to hit over N1,200 per litre.
Reacting to the development, Mr Obi said Nigeria felt the shock despite not being attacked because the government failed to plan.
“Many people wonder why any adverse development in the global economy quickly impacts Nigeria. A recent example is the tension involving Iran, which led to an increase in global oil prices and, subsequently, a rise in petroleum prices in Nigeria.
“A few weeks ago, petrol was selling for less than N1,000 per litre, but today it costs over N1,200 per litre. Diesel, which was also priced below N1,000 per litre, is now over N1,500 per litre. These rapid increases illustrate how quickly external shocks can affect the Nigerian economy.
“The reason for this is straightforward: most countries, whether they are oil-producing or non-oil-producing, maintain strategic petroleum reserves to cushion against supply or price shocks. This means that when there is a disruption in the global oil market, they can release part of these reserves to stabilise supply. However, Nigeria lacks such a buffer, so the impact is felt almost immediately.
“The underlying issue is a lack of planning. Countries that engage in planning create buffers against shocks, while those that do not remain vulnerable to them. The old maxim remains true: when a country fails to plan, it has already planned to fail,” he wrote.
Earlier this week, the Minister of Finance, Mr Wale Edun, said the country’s economy was strong enough to absorb external shocks, saying the over 4 per cent growth in the gross domestic product (GDP) in the fourth quarter of last year was a testament to that.
By Adedapo Adesanya
The Chairman of the National Tax Policy Implementation Committee (NTPIC), Mr Joseph Tegbe, has reiterated that Nigeria’s new tax regime is designed to ease the burden on workers and small businesses while strengthening the country’s fiscal sustainability and economic competitiveness.
Speaking at the BusinessDay Tax Reform Conference 2026, themed “Navigating the New Tax Regime: What It Means for Your Wallet,” Mr Tegbe described the reforms as the most comprehensive overhaul of Nigeria’s tax architecture in decades, aimed at simplifying taxation, improving fairness, and encouraging economic growth.
According to him, the reforms, anchored on four landmark legislations: the Nigeria Tax Act, 2025, Nigeria Tax Administration Act, 2025, Nigeria Revenue Service (Establishment) Act, 2025, and the Joint Revenue Board of Nigeria (Establishment) Act, 2025, introduce targeted reliefs for individuals and small businesses.
Under the new framework, individuals earning less than N800,000 annually will pay no personal income tax, while workers can claim rent relief of up to 20 per cent, capped at N500,000, among other reliefs.
He also said small businesses will benefit significantly, with companies earning below N100 million in annual revenue and with assets under N250 million exempted from Company Income Tax (CIT), while nano-enterprises earning below N12 million annually are exempted from income tax.
He, however, underscored the importance of proper documentation of earnings and subsequent filing of returns, even for those who fall within the threshold exempted from income tax.
“These reforms are designed to make taxation simpler, fairer, and more predictable for Nigerians,” he said, adding that “For most workers and small businesses, the new regime means paying the same or even lower taxes while operating within a more transparent system.”
The reforms also strengthen Nigeria’s tax administration through improved coordination among key institutions, including the Nigeria Revenue Service, the Joint Revenue Board of Nigeria, the Tax Appeal Tribunal, and the Office of the Tax Ombudsman, while accelerating the digitalisation of tax processes.
Mr Tegbe noted that beyond improving revenue efficiency, the reforms aim to create a tax system that supports enterprise, investment, and long-term economic growth.
“The ultimate objective is to build a tax system that works for both government and citizens, one that supports development while protecting the pockets of ordinary Nigerians,” he concluded
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