MPC Halts Hawkish Trends, Holds Rates As Analysts Applaud Decision

LAGOS – In line with projections by many analysts and stake­holders, all members of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), on Thursday, unanimously voted to hold the benchmark policy rate at 27.50 percent.

The committee also left the asymmetric corridor of +500/-100 basis points around the MPR unchanged, the Cash Reserve Ratio (CRR) of Depos­it Money Banks (DMBs) at 50 percent, and that of Merchant Banks at 16 percent as well as the Liquidity Ratio (LR) at 30 percent.

Addressing journalists at the end of the two-day meet­ing of the Monetary Policy Committee (MPC) in Abuja, CBN governor, Mr. Olayemi Cardoso, said the committee was unanimous in its deci­sion to hold rates at current levels.

Cardoso said, “At this meeting, the Monetary Policy Committee noted with satis­faction recent macroeconom­ic developments which are expected to positively impact price dynamics in the near to medium term.

“These include the stabil­ity in the foreign exchange market with the resultant appreciation of the exchange rate and the gradual modera­tion in the price of Premium Motor Spirit (PMS).

“Members, however, were not oblivious of the risk of persisting inflationary pres­sures driven largely by food prices”.

The committee affirmed that the rebased CPI num­ber (24.48%) is reflective of current economic realities and evolving consumption patterns.

The committee recognised the risk of persisting infla­tionary pressures driven primarily by food prices and emphasised the continued ef­forts of the fiscal authorities in addressing insecurity in food producing states so that supplies increase and food prices reduce.

The committee also reiterated the need for increased collaboration between the monetary and fiscal authorities, and therefore urged that this collaboration be strength­ened to achieve the mutually beneficial objectives of price stability and sustainable growth. ­

The MPC highlighted the benefits of the improvement in the external sector to ex­change rate stability, and the convergence of rates (the spread is currently at 3.33%) between the Nigeria Foreign Exchange Market (NFEM) and the parallel market. The MPC, therefore, urged the central bank to continue its efforts to boost FX liquidity.

The MPC applauded recent measures adopted by the CBN such as the Electronic Foreign Exchange Matching System (EFEMS) and the Nigerian Foreign Exchange Code to foster transparency and cred­ibility in the market.

Since the last MPC meet­ing held on the 26th Novem­ber 2024, the naira has appre­ciated by 9.03% against the US dollars in the NAFEM window.

The MPC expressed op­timism that the ongoing monetary and fiscal policy reforms would continue to attract Foreign Portfolio In­vestments (FPI) and Foreign Direct Investments (FDI) flows, as well as diaspora re­mittances. These reforms ap­pear to be increasing investor and stakeholder confidence in the economy.

It acknowledged the improvement in crude oil production which stood at 1.54mbpd as at January 2025, noting its potential to strengthen the current ac­count balance and enhance external reserves.

On banking sector stability, the committee noted that the banking system remained robust and resilient despite macroeconomic headwinds and urged the CBN to main­tain proactive surveillance of the banking system against domestic and external shocks.

The committee further en­couraged the continued close monitoring of the banking system as the implementation of the recapitalisation is on­going to ensure the injection of quality capital as envisaged in the framework is achieved.

President of the Capital Market Academics of Nigeria (CMAN), Prof. Uche Uwaleke, said the decision of the MPC is in agreement with his ear­lier call on the committee to pause interest rate hikes.

He said this will create room for output growth following the rebasing of the Consumer Price Index (CPI) which mea­sures inflation by the National Bureau of Statistics (NBS).

He said that the rebasing exercise was primarily meant to reflect current inflationary pressure which explained why the NBS moved the ref­erence price period to 2024.

In her reaction, Razia Khan, Managing Director and Chief Economist for Af­rica and the Middle East at Standard Chartered Bank, said the rescheduling of the meeting was meant to create additional interest in what the CPI rebasing might reveal.

Her words: “On balance, the CBN cited the inflation data as a justification for keeping interest rates on hold. With the CBN having raised the monetary policy rate by a modest 25 basis points to 27.5 percent only at its last meet­ing of 2024.

She added that the deci­sion to hold will give the com­mittee ample time to look at the possibility of rate easing soonest.

She said, “We think any front loaded easing might be considered premature by for­eign portfolio investors and may put at risk recent hard-won stability in Nigeria’s FX market.”

She expects the CBN to start easing in the second half (H2) of 2025, noting that a faster-than-expected im­provement in inflation could see the date of the first rate cut brought forward.

In their reaction, analysts at Coronation Merchant Bank said, “We anticipate a potential shift towards a more accommo­dative (dovish) policy stance, reversing its current hawkish approach if the current infla­tionary trend continues”.

The next MPC meeting is scheduled to hold on May 19 and 20, 2025.