Hot Source*With inflation declining, MPC faces pivotal choices
Nume Ekeghe and Kayode Tokede
Foreign and domestic investors’ transactions on the Nigerian Exchange Limited (NGX) increased by 99.03 per cent year-on-year (YoY) to N6.92 trillion in the first eight months of 2025, compared to the N3.48 trillion recorded in the comparable period in 2024.
This is as members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) who will hold their 302nd meeting from Monday, are faced with a delicate moment due to the moderation in inflation. The declining inflationary pressure offers policymakers a rare window to recalibrate interest rates, but the choices they make now could shape the direction of growth, investment, and stability in the months ahead.
The Consumer Price Index (CPI), which measures the rate of change in prices of goods and services, dropped to 20.12 per cent in August, compared to 21.88 per cent in the preceding month, National Bureau of Statistics (NBS) revealed on Monday, this week.
Following the rate cuts by central banks of Ghana, Saudi Arabia, United Arab Emirates, Qatar, Bahrain, Kuwait and the US Federal Reserve, all eyes are now focused on Nigeria’s MPC as its two-day meeting commences Monday.
For the NGX, THISDAY had reported that market capitalisation gained N26 trillion in the first eight months of 2025, as renewed investor confidence, bold reforms, and corporate resilience fuel a historic rally on the bourse.
According to the latest “domestic & foreign portfolio participation in equity trading” report released by the Exchange yesterday, total transactions by foreign and domestic represented a new record for the stock market, driven by Pension Fund Administrators (PFAs) and domestic high network investors increasing participation.
The report revealed that in the eight months of 2025, Foreign Portfolio Investments (FPIs) accounted for N1.45 trillion, about a 122 per cent YoY increase over N655.47 billion in the eight months of 2024, while domestic investors accounted for N5.46 trillion in the first eight months of 2025. This represented an increase of 94 per cent YoY from N2.82 trillion in the first eight months of 2024.
The report by NGX showed that the proportion of foreign investors increased to 21.01 per cent in the first eight months of 2025, as against the 18.86 per cent in the comparable period in 2024.
However, the proportion of domestic investors’ participation in the stock market dropped from 78.99 per cent between January and August 2025, from 81.14 per cent in same period of 2024.
According to the report, domestic institutional investors’ transactions moved from N1.37trillion in the first eight months of 2024, to N3.13 trillion, while domestic retail investors’ transactions stood at N2.3 trillion in the first eight months of 2025, from N1.45 trillion in same period in 2024.
Furthermore, the report indicated upbeat across the buy and sell sides of foreign transactions as foreign inflows stood at N705.87 billion in the first eight months of 2025, from N299.73 billion in same period in 2024.
Also, outflows on the other hand, moved from N355.74 billion in the first eight months of 2024 to N7748.23 billion in the comparable period of 2025.
The surge in foreign investors’ participation in the Nigerian stock market could be attributed the reforms by the Central Bank of Nigeria (CBN) in the foreign exchange market aimed at enhancing transparency, compliance, and market stability.
The reforms were part of the CBN’s broader strategy to create a fairer, more stable foreign exchange market and support economic growth through better monetary policies.
Additionally, analysts attributed the upbeat in the stock market to the increasing attractiveness of the Nigerian market to foreign investors, ongoing economic reforms, resilient earnings by Nigerian companies, exchange rate differential, ongoing banking recapitalisation and the reform in the oil sector.
The Vice President, Highcap Securities Limited, Mr. David Adnori, in a chat with THISDAY, attributed the growth in foreign investors’ participation to the federal government efforts in resolving foreign exchange backlogs, stressing that it increased investors’ confidence and sustained rally in the stock market.
“The increase in yield on debt instruments attracted foreign investors to the debt market. The combination of all these factors increased FPI into the capital market.
“In summary, Nigeria’s high-yield environment, recent regulatory reforms, a large and growing market, and supportive international signals make it an attractive destination for foreign investors seeking growth and diversification,” he added.
For his part, Managing Director, Arthur Steven Asset Management, Mr Olatunde Amolegbe, said the ongoing banking recapitalisation and the reforms in the oil sector have driven more investors to the market.
The former president of Chartered Institute of Stockbrokers (CIS), explained further: “We’ve seen increasing return of foreign portfolio investors, I understand the turnover by FPIs has grown significantly in the last few months.
“This can be attributed to the weaker naira that makes Nigerian stocks a bargain for FPIs. Secondly, new listings such as Aradel also boosted investors’ appetite for stocks. This can also be seen in the light of the approval of the Exxon Mobil’s acquisition by Seplat by the Federal Government.
“Thirdly, the banking recapitalisation exercise along with impressive second quarter reports have continued to attract investments towards that sector.”
Analysts at Coronation, in a report, stated that fuel subsidy removal, liberalisation of the forex market, and monetary policy tightening reforms by the present administration have played a pivotal role in turning the tide.
The firm, in a report titled “Nigeria’s Bold Economic Reforms: How Investors Can Benefit from New Opportunities in 2025,” said the government, through CBN, removed its hard peg on the Naira and allowed the exchange rate to be influenced more by market forces.
“This removed the subsidy on some US Dollar payments as well as the preferential treatment of some interests. Alongside this, the CBN cleared a backlog of dollar claims from previous years, which improved confidence in the market,” the firm explained.
Meanwhile, as the MPC prepares for its 302nd meeting, market watchers are split on the likely outcome, with projections ranging from a cautious rate hold to a modest policy easing.
Analysts are sharply divided, with some projecting a modest rate cut of 50 basis points, while others argue for a cautious hold to avoid unsettling fragile stability.
Head of Financial Institutions Ratings at Agusto & Co., Ayokunle Olubunmi, cautioned that the economy remains too fragile to accommodate aggressive easing. He argued for a hold, or at best, a mild 50 basis points cut.
“Yes, there are signs of relative stability, but that stability is still tentative, and it may be wiser to wait until the next meeting before making any significant move.
“If you also track the Treasury bills market, you’ll notice rates have been difficult to sustain at lower levels. Each time they were reduced, an upward adjustment had to follow. That tells you cutting rates sends a strong signal of a shift towards an expansionary stance, and I don’t believe the economy is quite ready for that yet, ” he added.
Analysts at Cordros Securities said they expect the Committee to begin reassessing its hawkish stance, supported by recent improvements in key macroeconomic indicators, including inflation moderation and relative exchange rate stability.
The firm also pointed to the global monetary policy cycle, noting that the US Federal Reserve’s rate cut and prospects of further easing across advanced economies could create a more favourable backdrop for capital flows into frontier markets like Nigeria.
“Accordingly, we project a 50 basis points cut in the Monetary Policy Rate (MPR) to 27.00 per cent at next week’s meeting, while maintaining other parameters.
“Any easing will be carefully calibrated to ensure interest rates remain competitive enough to attract inflows and anchor inflation expectations,” they added.
Similarly, the Economic Intelligence Unit at Access Bank Plc, in a note to customers, forecast a deeper 100 basis points reduction in the benchmark rate to 26.5 per cent. It described such a move as a “strategic pivot” away from the prolonged tightening cycle, balancing inflation management with the urgent need to stimulate domestic growth.
“With price pressures easing, the CBN has room to adopt a more accommodative policy without triggering renewed inflation,” the bank’s research team observed, warning that excessively high interest rates risk constraining investment, consumption, and broader economic momentum.
“It expects the MPC to retain the Cash Reserve Ratio for deposit money banks at 50 per cent, merchant banks at 16 per cent, alongside the liquidity ratio at 30 per cent, while leaving the asymmetric corridor around the MPR unchanged.”
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