The Monetary Policy Committee (MPC) on Thursday maintained the benchmark interest rate, known as the Monetary Policy Rate (MPR), at 27.5 percent following the rebasing of the Consumer Price Index (CPI), signaling the return of a real rate environment.
After its first two-day meeting of the year, all 12 members of the MPC in attendance unanimously agreed to keep the MPR at 27.5 percent and retain the asymmetric corridor around the MPR at plus 500 and minus 100 basis points. They also retained the cash reserve ratio (CRR) at 50 percent for deposit money banks and 16 percent for merchant banks, and upholding the liquidity ratio at 30 percent.
Olayemi Cardoso, governor of the CBN, said the MPC 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).
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“Members, however, were not oblivious of the risk of persisting inflationary pressures driven largely by food prices. The committee noted the recent rebasing of the Consumer Price Index (CPI) by the National Bureau of Statistics (NBS), which reviewed the weights of items in the consumption basket to reflect current consumption patterns,” he said.
The NBS on Tuesday rebased the CPI reading, which revealed a sharp reduction in Nigeria’s headline inflation rate to 24.5 percent y/y in January 2025 (post-rebasing), compared with the pre-rebasing reading of 34.8 percent y/y in December 2024.
Most analysts expected a hold, citing CPI rebasing and to allow the previous hikes in interest rates to reflect on the economy.
Real rate return
Reacting to the decisions of the MPC on Thursday, Tilewa Adebajo, chief executive officer (CEO) of The CFG Advisory, said the dynamics of lagging inflationary data and the stability of the primary cost push factors, fuel prices and exchange rate devaluation suggest that the monetary authorities should observe the financial markets and the dynamics of the economy until the next MPC to ensure the trajectory of inflation is indeed on the downward trend.
“On face value, however, real rates are now positive in Nigeria as interest rates are higher than inflation. Value has been restored to financial markets and assets,” he said.
Commitment to rein in inflation
Razia Khan, managing director, chief economist, Africa and Middle East Global Research at Standard Chartered Bank, said there is a commitment to bring inflation down to single digits in the ‘medium-to-long-term.’
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“In our view this is an encouraging message. Given the recency of Nigeria’s inflation experience, it would have been too soon to signal the all-clear. The next meeting is scheduled for May 20th. Depending on both the inflation releases between now and then, and crucially, how FX behaves, market expectations of the start of the easing cycle may well build.”
Ayo Teriba, an economist and CEO of Economic Associates (EA), said the MPC’s first anniversary meeting held against the backdrops of three important fundamental reliefs: the treats of fiscal expansion being constrained by inadequate funding that resulted in less than 50 percent 2024 budget performance; reduced weights of food and energy in the CPI basket; and a strengthening naira exchange rate.
He said the MPC might have overreacted to the threats from these sources in the last one year in its policy tightening.
“They will inevitably begin to ease if these reliefs persist,” he said.
MPC’s cautious approach
Analysts at Parthian Partners said the MPC’s decision reflects a cautious policy approach in response to prevailing economic conditions, ensuring financial system stability while monitoring inflationary pressures and growth dynamics.
MPC commends CBN reforms
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 November 26, 2024, the naira has appreciated by 9.03 percent against the US dollars in the NAFEM window.
Read also: NBS to release rebased inflation figures as MPC convenes
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.
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