Market News

• Nigeria's central bank is expected to resume cutting interest rates at next week's meeting due to slowing inflation and exchange-rate stability.
• Bank of America expects the Central Bank of Nigeria to deliver a 100 basis point rate cut, followed by a similar reduction in November, bringing the benchmark monetary policy rate to 24.5% by year-end.
• The naira is predicted to appreciate towards 1,300 against the dollar, supported by foreign exchange reserves above $50 billion.

Nigeria’s central bank is expected to resume cutting interest rates at next week’s meeting, buoyed by slowing inflation and exchange-rate stability, according to Bank of America.

Annual inflation, which slowed to 15.4% in August and a stronger naira that is up 8% this year, have created “room for the Central Bank of Nigeria to begin cautiously easing monetary policy,” BofA Analyst Raghav Adlakha said in a report.

BofA expects the Central Bank of Nigeria to deliver a 100 basis point rate cut when Governor Olayemi Cardoso announces the decision on Sept. 22, followed by a similar reduction in November. That would bring the benchmark monetary policy rate to 24.5% by year-end, it said.

“Declining domestic yields, improved foreign exchange stability, and moderating inflation has created conditions that are supportive of monetary easing,” the analyst said.

Still, there is a risk of a reversal in portfolio inflows which could put pressure on the naira after the Federal Reserve raised US interest rates by a quarter percentage point on Wednesday, with a median projection for one more hike by year end. That could deter the Nigerian central bank from adopting such aggressive cuts, the report said.

So while BofA expects the easing cycle to begin in September, the CBN might prefer to opt for more gradual 50 basis point cuts, or delay further easing until global financial conditions become more supportive.

Bank of America is also predicting the naira to appreciate towards 1,300 against the dollar, supported by foreign exchange reserves above $50 billion. That’s in line with analysts at Citigroup who expect the currency to remain broadly within a 1,300 - 1,350 per dollar range. The naira was quoted around 1,330/dollar in afternoon trade in Lagos on Wednesday.

— With assistance from Ray Ndlovu