2 hours ago
20
By Uche Usim
The Central Bank of Nigeria’s (CBN) first Monetary Policy Committee (MPC) meeting of 2025 signaled a strategic shift in the nation’s economic trajectory.
For the first time since May 2022, the committee decided to pause its aggressive rate hikes, showing confidence in a more stable economic outlook. The decision came on the back of easing inflationary pressures, a strengthening naira and a steady reduction in petrol prices; factors that have long dictated Nigeria’s monetary policy direction.
Battling inflation and maintaining exchange rate stability
Nigeria, an import-dependent economy, has historically struggled with inflation. The twin challenges of taming inflation while maintaining exchange rate stability have made monetary policy decisions particularly intricate.
However, at its recent meeting in Abuja, the MPC elected to keep the Monetary Policy Rate (MPR) at 27.50 percent while maintaining other key parameters—Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) at 50 percent and Merchant Banks at 16 percent, an asymmetric corridor around the MPR at +500bps/-100bps and a liquidity ratio of 30 percent.
With the country’s annual inflation rate standing at 24.48 percent in January, down from the previous month’s figures following the long-overdue rebasing of Nigeria’s Consumer Price Index (CPI), analysts lauded the MPC’s decision as a necessary step in sustaining macroeconomic stability.
CBN Governor, Olayemi Cardoso, highlighted the apex bank’s commitment to economic consolidation, stating, “We will enhance collaboration with the fiscal sector by increasing the depth and regularity of our interactions to drive economic growth. With stabilizing forex rates, strengthened price controls, and rising investor confidence, the economy shows strong signs of resilience and recovery.”
Naira strength and the FX market reforms
A significant factor influencing the MPC’s decision was the strengthening of the naira, which appreciated by 6.95 percent to N1,510/$ in the parallel market as of February 20. The rally was driven by subdued forex demand, improved liquidity, and sustained CBN interventions.
Cardoso reaffirmed CBN’s focus on boosting liquidity and transparency in forex operations, stating, “Our objectives have been and will continue to be to achieve stability in the Foreign Exchange and the Financial markets. CBN will continue to embrace orthodoxy and stay the course. Inflation has been too high for too long, and our goal is to bring it down from double digits to single digits in the medium to long term.”
Business sector reactions and growth projections
The decision to hold rates was widely welcomed by businesses and real-sector operators, who emphasized the need to sustain the naira’s rally while ensuring that borrowing costs do not spiral out of control.
The MPC also projected robust GDP growth, driven by increased contributions from the non-oil sector. The committee noted the country’s steady rise in crude oil production to 1.74mb/d and expressed optimism that improved contributions from the oil sector would further bolster GDP growth.
Moreover, the committee acknowledged the implementation of the Electronic Foreign Exchange System (EFEMS) and the Nigerian Foreign Exchange Market (NFEM) FX Code, which are expected to enhance transparency, credibility, and investor confidence in the forex market.
Risks and expectations
On the international front, the MPC flagged potential downside risks, including ongoing geopolitical tensions in Ukraine and the Middle East. Additionally, concerns about a possible global trade war driven by U.S. tariff hikes could stoke inflationary pressures worldwide.
However, the International Monetary Fund (IMF) has maintained its global GDP growth forecast at 3.3 percent for both 2025 and 2026, a signal that the global economy may maintain some level of stability despite these uncertainties.
Experts’ views
Analysts at Cordros Securities predict that future MPC decisions will be influenced largely by developments in the forex market and inflation trends. “While a potential rate cut could be considered at the May policy meeting, we anticipate a gradual approach aimed at balancing exchange rate stability with the anticipated disinflationary process,” they noted in a report.
Market analysts had anticipated a more cautious stance from the MPC, given the tight liquidity conditions in the financial system. Managing Director of Financial Derivatives Company Limited, Bismarck Rewane, emphasized the delicate balancing act required, warning that excessive tightening could stifle economic growth while premature easing could reignite inflation. “Markets perceive this move as the beginning of a more accommodative stance, as the yield curve inverted following the rate decision,” Rewane stated.
Research Head at Cowry Asset Management Limited, Charles Abuede, noted that “the committee should remain focused on maintaining price stability, especially as inflationary pressures persist despite previous rate hikes.” He emphasized that the lower inflation print has prompted the MPC to shift its priority toward economic growth rather than further monetary tightening.
Long-term economic implications
Beyond the MPC’s rate decision, broader structural reforms have played a role in shaping Nigeria’s economic landscape. The unification of the exchange rate, for instance, has attracted significant foreign capital inflows and reduced CBN’s intervention in the forex market. The successful clearing of over $7 billion in FX backlog further reinforced investor confidence, with institutions like the World Bank describing these moves as bold steps toward long-term economic sustainability.
CBN’s ongoing macroeconomic stabilization efforts have not gone unnoticed, as Nigeria successfully re-entered the Eurobond market in late 2024 after a two-year hiatus. The dual-tranche Eurobond issuance saw investor demand exceed $9 billion, underscoring renewed market confidence in Nigeria’s economic trajectory.
Foreign portfolio investment inflows also surged, reaching $3.48 billion in the first half of 2024 compared to just $756.1 million during the same period in 2023. This uptick signals growing investor confidence in Nigeria’s ability to manage its external debt obligations.
Looking ahead, the Nigeria Economic Summit Group (NESG) predicts that easing inflation could prompt the MPC to adopt a more accommodative stance later in the year, potentially lowering interest rates to stimulate economic activity. This would mark a significant shift from the previously tight monetary policy regime that was aimed at curbing inflation.
While inflationary pressures have moderated, the CBN remains vigilant in its fight to bring inflation down to single digits. Analysts agree that achieving this goal will require a mix of orthodox monetary policy measures, structural economic reforms, and enhanced coordination between fiscal and monetary authorities.
As Nigeria trudges on, experts note that the balance between exchange rate stability, inflation control and economic growth will remain a key challenge. However, with improving forex liquidity, increased investor confidence, and stabilising inflation, the country appears to be on the right track toward sustainable economic recovery.
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