Citing Inflation Moderation, Exchange Stability, CBN Holds Interest Rates At 27.5%

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) took a twist in its year-long inflation chase yesterday by holding all the parameters constant around the 27.5 per cent Monetary Policy Rate, attributing the decision to a moderation in major economic variables, especially the rebased inflation figure.

However, analysts say they expect that a moderation in rates is to be expected at the next meeting slated for May 19 and 20, 2025.

CBN Governor Olayemi Cardoso while addressing a media conference yesterday, also said the central bank has taken measures in terms of orthodox monetary policies that have begun to yield fruit.

“They (monetary policies) have begun to yield fruit. We can see that attrition to reserves has been consistent. And at one point in time, may I remind everybody that we achieved the highest level of reserves in the past three years at one point in time.

We also continue to see inflation gradually, gradually beginning to decelerate. We can see that there’s greater confidence in our markets, and that was something that was missing when we started this journey.

“We can see that confidence is gradually returning to our markets, which shows that we are on the right course. Now, obviously, as that happens, we are in a better position to begin the process of moderating rates, because stability is very, very important. And if investors do not see stability, they do not come to those markets,” Cardoso stated in Abuja.

On Thursday, 12 members of the MPC unanimously voted to retain all policy parameters around the MPR. The MPC held the asymmetric corridor around the MPR at +500/-100 basis points; the Cash Reserve Ratio of deposit money banks at 50.00 percent and merchant banks at 16 per cent; and retained the liquidity ratio at 30.00 per cent.

That decision departs from the CBN’s approach throughout 2024, during which the MPR was incrementally increased to address rising inflation, culminating in the current rate of 27.50 per cent established in November.

Cardoso said there is now stability in the foreign exchange market with the resultant exchange rate appreciation and the gradual moderation in the price of Premium Motor Spirit (PMS).

The National Bureau of Statistics (NBS) recently reported a decline in Nigeria’s headline inflation rate to 24.48 per cent year-on-year for January, a significant decrease from the previous month’s 34.80 per cent.

The improvement is largely attributed to a rebasing exercise that updated the base year from 2009 to 2024, providing a more accurate reflection of current consumption patterns.

“As always, we are data-driven. What we have is a CPI which is more reflective of the consumption pattern. To that extent, one commends the NBS for bringing this to reality,” Governor Cardoso stated.

He noted that the rebased inflation reflects the true position of the nation’s inflationary position and is in line with the international best standard. Despite the positive shift in inflation figures, the MPC opted to maintain the current MPR to ensure sustained economic stability.

Cardoso expressed confidence that Nigeria will begin to see more investments coming into its market, a possibility he said would spur the badly needed growth.

He said the Naira is now “a lot more competitive,” stating that the competitive level of the Naira has led to an increased interest from international investors to want to come and invest in the country’s future.

MPC is of the view that following major policy measures undertaken by the monetary and fiscal authorities, the flow of foreign direct and portfolio investments as well as diaspora remittances are expected to increase as investor and stakeholder confidence improves.

The MPC observed that despite pockets of macroeconomic headwinds confronting the Nigerian economy, the banking system has remained robust and resilient.

“As far as the Central Bank is concerned, as always, we are data-driven and that will continue. We will continuously look at data and our decision matrices will be focused accordingly. Of course, what we have is a CPI which is more reflective of the reality of consumption patterns and that’s a good thing.

“For example, the previous one that we had actually took account of black and white televisions, for example, which we all know is no longer relevant. So to that extent, really one commends the efforts of the NBS in bringing the numbers to greater reality,” the CBN governor while applauding the rebasing of the economy.

Commenting on the MPC decision, head of Financial Institutions Rating at Agusto & Co, Ayokunle Olubunmi noted that the outcome is in line with expectations. “We believe that the Committee decided to keep things stagnant and watch the economy before. This is understandable given that the CPI was just reconstructed with the inflation rate, using the new base released.”

On his part, Chief Executive of Center for Promotion of Private Enterprise (CPPE) Dr Muda Yusuf noted that with the decision to hold, it is expected that the committee will begin to look at cutting rates at its next meeting.

Noting that MPR is not expected to be higher than inflation rates, he said “going forward, we should begin to see a moderation in the rates, a relaxation of the tightening measures because it is also not appropriate to have MPR higher than inflation rate.

“At the next MPC meeting we would like to see a gradual relaxation of the tightening mood of the CBN. We would like to see a reduction in the MPR, the CRR going forward. Already there are indications that prices are beginning to drop.

Regency Alliance Insurance increased by 7.58 per cent to close at 71 kobo, while The Initiates Plc added 7.23 per cent to close at N4.30, per share.

On the other side, Union Dicon Salt led others on the losers’ chart with 9.77 per cent to close at N6.00, per share. Deap Capital Management and Trust followed with 7.07 per cent to close at 92 kobo, while CWG lost 5.75 per cent to close at N8.20, per share.

Ikeja Hotels depreciated by 5.56 per cent to close at N11.90, while Tantalizers declined by 4.88 per cent to close at N1.95, per share.

The total volume of trades increased by 22.56 per cent to 421.256 million units, valued at N8.425 billion, and exchanged in 13,269 deals. Transactions in the shares of Ellah Lakes led the activity with 136.677 million shares worth N440.157 million.

Zenith Bank followed with 22.979 million shares valued at N1.150 billion, while Guaranty Trust Holding Company (GTCO) traded 20.832 million shares valued at N1.307 million.

Jaiz Bank traded 17.396 million shares worth N58.592 million, while United Bank for Africa (UBA) traded 16.278 million shares worth N617.003 million.