As 2025 unfolds, investors are closely monitoring interest rate trends, ready to make strategic decisions in response to anticipated shifts in monetary policy. With inflation and economic growth under the spotlight, interest rate movements are expected to profoundly impact markets—affecting stock valuations, bond yields, currency performance, and commodity prices.
Specifically, as central banks worldwide convene to set their monetary directions, investors are preparing for potential shifts that could redefine the financial landscape, presenting both opportunities and challenges in the months ahead.
Investment analysts predict that Q1 2025 will be a defining period, with interest rate trajectories serving as a guiding tool for financial strategies.
In November 2024, the Central Bank of Nigeria (CBN) raised the Monetary Policy Rate (MPR) to 27.5 percent. While the move was aimed at curbing inflation, critics argue it has hampered economic growth. Lending rates now exceed 34 percent, a barrier to entrepreneurship and private-sector expansion.
Senator Ahmad Lawan, President of the 9th Senate, earlier this year highlighted how high borrowing costs hinder business investments and agricultural productivity. Local businesses and farmers face difficulty remaining competitive and profitable compared to international peers in countries with lower interest rates.
Liquidity issues have also persisted in Nigeria’s financial markets. By Friday’s close, interbank rates climbed further, with the Open Repo Rate (OPR) and Overnight Rate (O/N) at 27.29 percent and 27.86 percent, respectively. Despite this, investor interest in treasury bills pushed average benchmark yields down to 25.27 percent from 25.57 percent the previous week. Conversely, Open Market Operation (OMO) bills experienced a bearish trend, with average benchmark yields rising to 28.36 percent.
In 2024, the CBN narrowed the gap between 1-year Treasury Bill (T-bill) rates and inflation, boosting savers’ confidence in T-bills and money market mutual funds.
Market data shows that Yields on T-bills consistently exceeded 20 percent annually, peaking at 29.51 percent in December auctions for 1-year bills. Secondary market yields ranged between 25 percent and 28 percent. Analysts expect the CBN to sustain these policies in 2025 to manage inflationary pressures effectively.
Similarly, the bond market saw cautious activity as investors awaited the release of the 2025 auction calendar. Benchmark yields on Nigerian government bonds increased slightly to 19.80 percent, reflecting sell-offs in anticipation of higher bond supply. Analysts forecast that inflation, liquidity conditions, and investor sentiment will shape bond yields throughout 2025.
The Debt Management Office (DMO) is expected to release its borrowing plan, targeting over N7 trillion to close fiscal deficits. Refinery overhauls and the CBN’s hawkish stance could ease inflationary pressures, creating a more stable environment for government borrowing.
According to a report by Coronation Research analysts, Nigeria’s stock market ended 2024 on a high note, delivering a 37.65 percent gain in investor returns. The oil and gas sector was the best-performing index, driven by federal reforms promoting growth, transparency, and investments.
Notable performers included Seplat Energy, whose stock rose 147 percent to close at N5,700 in 2024, up from N2,310 in 2023. Conoil saw a remarkable 387.2 percent increase, closing at N387.20 per share from N83.90. Eterna recorded a 75.45 percent growth, ending at N24.30 per share from N13.85.
Other strong gains included TotalEnergies Marketing Nigeria, which reached N698 per share, reflecting an 81.3 percent year-to-date rise from N385 in 2023. Oando Plc surged by 529 percent, closing at N66.00 per share, up from N10.50. MRS Oil Nigeria also recorded significant growth, ending 2024 at N217.80 per share, representing a 107.4 percent increase from N105.
Interest rate trends will remain a decisive factor in global investment strategies for Q1 2025. As central banks maintain elevated rates to combat inflation, their effects on bonds, equities, and treasury bills are closely watched.
In the fixed-income market, rising interest rates typically depress bond prices, as newly issued bonds offer higher yields. Investors often shift to short-term bonds or treasury bills, which are less sensitive to rate hikes and provide competitive returns. Backed by government guarantees, treasury bills offer stability and lower risk during economic uncertainty.
For equities, rising rates have mixed effects. Higher borrowing costs can reduce corporate profits and dividend payouts, particularly in growth-dependent sectors like technology. However, industries such as financial services could benefit from improved interest spreads, bolstering profitability.
Institutional and retail investors are expected to explore alternative asset classes to balance growth and stability in this dynamic environment. Diversification strategies—spreading investments across multiple asset categories—are likely to dominate as investors optimise returns while managing risks.
As the year begins, the interplay between high interest rates and inflation remains central to investment strategies. While elevated rates challenge borrowers and businesses, they also open opportunities in fixed-income securities and select equity sectors.
The Nigerian financial markets are poised for a transformative year. Investors will need to adopt adaptable, diversified and vigilant approaches to navigate the complexities of an evolving economic landscape and maximise returns in this opportunity-filled environment.
READ ALSO: MPR hike: Tougher time for borrowers, pensioners as inflation, interest rate gap widens
