Financial analysts at Cordros Capital have projected that the fixed-income market in 2025 will remain volatile, driven by both domestic and global factors.
The firm has identified key drivers of market activities, including global monetary policy trends, external debt markets, and local monetary policy administration.
Additionally, demand and supply dynamics, influenced by an anticipated budget deficit, are expected to shape market performance.
Cordros Capital forecasts a year-end decline in yields, estimating Treasury bill and bond yields to settle around 18.5 per cent and 18.0 per cent, respectively.
The analysts also predict a 23 per cent gain for the fixed-income market under their base case scenario, citing steady GDP improvement, enhanced foreign exchange (FX) liquidity, and a modest rise in corporate earnings, despite the prevailing elevated fixed-income yields, as factors likely to drive market sentiment.
Cordros Capital presented three potential inflation scenarios for 2025, categorized as base, bull, and bear cases. In the base case, petrol prices are projected to range between N1,100 and N1,200 per litre, while the naira is expected to trade within N1,600–N1,950/USD in the Nigerian Foreign Exchange Market (NFEM).
This scenario assumes a 15 per cent increase in electricity tariffs, resulting in an average inflation rate of 32.40 per cent year-on-year (y/y).
The bull case envisions a more optimistic outlook, with lower petrol prices ranging from N900 to N1,100 per litre and a naira exchange rate of N1,300–N1,650/USD. In this scenario, the absence of a significant electricity tariff hike could lead to a reduced average inflation rate of 28.91 per cent.
In the bear case, which represents a more challenging economic environment, petrol prices are anticipated to exceed N1,200 per litre, while the naira could depreciate further, trading above N2,000/USD. Additionally, an electricity tariff increase exceeding 15 per cent would likely drive inflation to an average of 34.93 per cent.
Despite FX market reforms in 2024 that boosted market confidence and liquidity, Cordros Capital notes that naira stability remains elusive.
Insufficient FX inflows from both the Central Bank of Nigeria and foreign portfolio investments were identified as limiting factors. For 2025, the firm projects reserve accretion of $1.60bn in the first half of the year, compared to $1.86bn in the same period of 2024.
By the end of the half-year of 2025, reserves are expected to reach $43.04bn, providing an estimated 14.3 months of import cover.
The Monetary Policy Committee (MPC) is expected to maintain a cautious stance in 2025. Analysts anticipate a possible 25-basis-point hike in January, followed by a steady policy rate for most of the year.
A rate cut of 50 basis points is projected in November, potentially bringing the Monetary Policy Rate (MPR) to 27.25 per cent by year-end. However, if inflationary pressures intensify due to further naira depreciation or rising petrol prices, additional rate hikes may be necessary.
Despite challenges in 2024, including high inflation, naira depreciation, tight financial conditions, and insecurity in food-producing regions, Nigeria’s economy demonstrated resilience. Real GDP growth is forecast to improve to 3.87 per cent in 2025, driven by gains in both the oil and non-oil sectors.
The oil sector is expected to grow by 6.14 per cent, supported by new field developments, improved investments, and heightened security measures. Meanwhile, non-oil growth, projected at 3.74 per cent, will benefit from strong performance in the services sector.