- Claim decision risky due to potential external shocks, excessive public spending
- ‘It’s a step towards monetary stability, economic growth’
Economic experts have expressed divergent opinions on the decision of the Central Bank of Nigeria’s Monetary Policy Committee to maintain all rates with the headline Monetary Policy Rate held at 27.5 per cent.
While some view it as a step towards monetary stability and economic growth, others argue that the decision is risky due to potential external shocks and excessive public spending.
They emphasise the need for continued monetary tightening to curb inflation and maintain stability.
The Central Bank of Nigeria on Thursday retained its benchmark interest rate known as the Policy Rate at 27.5 percent, following the rebased consumer price index.
The National Bureau of Statistics 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.
Some experts who spoke in interviews with THE POINT described the decision to maintain all rates, including the Monetary Policy Rate at 27.5 per cent, as a positive development for the economy.
“With this decision coming at the start of the year, 2025 is expected to experience relatively low interest rates and a monetary policy approach that supports economic growth.”
Nigeria’s First Professor of Capital Market, Professor Uche Uwaleke, stated that the decision marks the end of an era of aggressive policy rate hikes, particularly in light of the rebased Consumer Price Index and a stable exchange rate.
He emphasized that the move brings the much-needed stability to monetary policy, which is crucial for business planning and household financial decisions.
“It is a good decision by the MPC. It signals the end of aggressive interest rate hikes and reflects the impact of the rebased Consumer Price Index and a stable exchange rate. More importantly, it introduces stability in monetary policy, which is essential for firms and households to plan effectively,” Uwaleke remarked.
Looking ahead, the professor projected that 2025 would likely witness a lower interest rate environment and a shift towards a more pro-growth monetary policy stance.
“With this decision coming at the start of the year, 2025 is expected to experience relatively low interest rates and a monetary policy approach that supports economic growth,” he added.
Also, the Head of Research and Investment at FSL Securities Limited, Victor Chiazor, stated that the decision to maintain all policy parameters was expected, given recent trends in the financial markets and inflation data.
According to Chiazor, the decline in treasury bill stopped rates since January 5, 2025, coupled with a significant drop in inflation—falling from 34.80 per cent in December 2024 to 24.48 per cent in January 2025 following the rebasing exercise—made it logical for the MPC to hold rates and observe the economy’s response before making further adjustments.
“The decision to maintain the status quo on all CBN MPC policy parameters does not come as a surprise.
“With the downward trend in treasury bill yields and the inflation rate dropping significantly due to the rebasing exercise, it was only natural for the committee to pause and assess the economic impact of these changes,” Chiazor stated.
He cautioned that a premature reduction in the Monetary Policy Rate could create panic in the financial system, which might undermine price stability.
“A sudden drop in the MPR could trigger uncertainty in the market, which would be detrimental to price stability,” he noted.
Chiazor also addressed ongoing calls for monetary easing but emphasized the need for a cautious approach to avoid disrupting capital flows and financial market stability.
“Despite growing calls for policy easing, we do not expect drastic adjustments to monetary policy parameters. A hasty shift could negatively impact capital flows, so any adjustments must be made gradually to prevent market distortions,” he concluded.
However, the Managing Director of Highcap Securities Limited, David Adonri expressed concerns over the decision to maintain all monetary rates, including the Monetary Policy Rate at 27.5 per cent.
Adonri described the move as risky, citing potential external shocks and the impact of excessive public spending driven by the Federal Government’s large deficit budget.
He argued that monetary policy should be proactively tightened to mitigate these threats.
“The MPC’s decision to hold all rates poses a significant risk because of the looming external shocks and the excessive public expenditure that will arise from the Federal Government’s deficit financing,” Adonri stated.
“Monetary policy ought to proactively address these concerns by continuing with a tightening approach,” he added.
He also questioned the credibility of the inflation slowdown cited as a basis for the MPC’s decision, suggesting that the methodology used by the National Bureau of Statistics in rebasing inflation data does not accurately reflect economic realities.
“The supposed deceleration of inflation, which influenced the MPC’s decision, may be misleading because the weightings applied by the NBS during the rebasing exercise do not align with the current economic situation,” he added.
Adonri further noted that by maintaining rates, the monetary authorities may be acknowledging that short-term demand management policies have lost their effectiveness.
He emphasized the need for fiscal policy measures to address the persistent inflationary pressures by closing the supply gap in the economy.
“In keeping rates unchanged, the monetary authorities may be realizing that short-term demand management strategies have been exhausted. The time has come for fiscal policy to step up and take responsibility for bridging the supply deficit that continues to fuel inflation,” he concluded.
On his part, the Chief Executive Officer of the organisation, Muda Yusuf, said the decision was in line with the expectations of most financial analysts.
Yusuf said the recently rebased inflation computation by the National Bureau of Statistics showed a decline in inflation rate to 24.48 per cent, which is currently less than the MPR.
He said, “I think that it makes sense to retain the MPR, CRR and the Liquidity Ratio so that we do not further exacerbate the pressure of interest rate on businesses and citizens that have exposure to the banks.”
He also said Nigerians should now begin to see moderations on these rates going forward because it was also not appropriate to have MPR now being higher than inflation rate.
Yusuf stated, “It is tightening the noose too much on the investors in the economy.
“Additionally, I believe that a cash reserve ratio of 50 per cent is too high for the economy. We will like to see gradual relaxation of the tightening mode on the MPR and the CRR in the next MPC meeting.
“There are indications that prices are beginning to drop. We have seen a slight drop in the price of diesel, PMS, pharmaceutical products and some food items.
“We are likely to see further drops in the prices of other products if we maintain the stability in the exchange rate.”
According to Yusuf, the CRR at 50 per cent of the CBN is the highest in the whole world.
He said, “I do not think we can continue with that kind of trajectory. There is no justification for it. Our macroeconomic condition is not as bad to warrant such an outrageous level of CRR.
“The closest to Nigeria’s CRR is Turkey’s 25 per cent. So, it should be reduced.
“In addition, the asymmetric corridor of plus 500 basis points is also too high. If the MPR is already at 27.50 per cent, why should we have an asymmetric corridor at plus 500 basis point? It is too high.”
Yusuf said those were the things that needed to be reviewed because to continue on the trajectories would practically disconnect the financial system from the real economy.
“It will have a very serious impact on economic growth. So, there is a need for serious rethink on these tightening measures going forward,” Yusuf said.
Also, another financial analyst and Group Chief Executive Officer of Cowry Assets Management, Johnson Chukwu, stated that with inflation at 24.48 per cent, the decision signals a shift in policy, reducing the likelihood of further rate hikes in the immediate term.
“In terms of inflation, the decision to hold was based on the fact that the interest rate environment is now positive. Bear in mind that the Monetary Policy Rate is 27.5 per cent and inflation is 24.48 per cent. At this point, we can say that Nigeria has a positive interest rate. What that means is that we should not expect further increases in interest rates,” Johnson said.
He explained that investors are still enjoying positive returns, making additional rate hikes unnecessary.
“The discount rate on Treasury Bills was 21.8 per cent, yielding effectively. This means that as long as investors get positive returns, we should expect that further increases in rates will not necessarily happen in the immediate,” he noted.
Johnson also highlighted the impact of the CBN’s policies on commercial banks, stating that “the percentage of 50 per cent deposit is still sterilised, which means the banks are not encouraged to increase their lending. The CBN does not have to cover the banks to create additional loans.”
He emphasized the importance of aligning monetary and fiscal policies to ensure economic stability.
“The key thing we must know is that every policy has positive and negative effects. What that means is that the monetary authorities must come up with policies that do not counterbalance the fiscal authorities. The fiscal authorities have adopted aggressive fiscal policies and want to stimulate the economy, and what the monetary authorities must do is ensure they do not neutralize these fiscal policies.”
He further warned that excessive monetary stimulus could have negative consequences.
“Any monetary policy that significantly increases the stimulation of the economy beyond what the fiscal authorities have done will lead to forex exchange pressure and inflationary pressure. To avoid that, at this point, they made the best decision.”
Johnson concluded by stressing the need for collaboration between monetary and fiscal policymakers.
“The monetary and fiscal authorities must go hand in hand,” he said.
CBN Governor, Olayemi Cardoso, announced the decision during a press briefing on Thursday, stating that all parameters were unanimously held as the committee assessed the economic outlook for 2025.
“The committee was unanimous in its decision to hold all parameters and thus decided as follows: 1. Retain the MPR at 27.50 per cent. 2. Retain the asymmetric corridor around the MPR at +500/-100 basis points.
“3. Retain the Cash Reserve Ratio of Deposit Money Banks at 50.00 per cent and Merchant Banks at 16 per cent. 4. Retain the Liquidity Ratio at 30.00 per cent,” Cardoso said.
The decision marks a pause in rate hikes after six consecutive increases in 2024, as the apex bank navigates inflationary pressures, exchange rate volatility, and economic growth concerns.
The committee noted stability in the foreign exchange market, improvements in external reserves, and a gradual moderation in fuel prices as key macroeconomic developments influencing its decision
It acknowledged that inflation remains a concern, particularly as the recent rebasing of the Consumer Price Index by the National Bureau of Statistics revised headline inflation to 24.48 per cent in January 2025, compared to 34.80 per cent in December 2024 under the previous base year.
The MPC expressed confidence that as food security measures improve, inflationary pressures, particularly those driven by food prices, will ease over time.
Cardoso further highlighted the need for continued collaboration between monetary and fiscal authorities to sustain recent macroeconomic gains.
He stated that the CBN’s recent measures in the foreign exchange market, such as the Electronic Foreign Exchange Matching System and the Nigeria Foreign Exchange Code, have helped stabilise the exchange rate.
The committee observed a convergence between the Nigeria Foreign Exchange Market and Bureau de Change rates, improving market transparency and liquidity.
The committee noted a positive trend in oil production, which reached 1.54 million barrels per day in January 2025, as a key factor supporting external reserves, which stood at $39.4bn as of February 14, 2025, translating to an import cover of 9.6 months.
“The supposed deceleration of inflation, which influenced the MPC’s decision, may be misleading because the weightings applied by the NBS during the rebasing exercise do not align with the current economic situation.”
It also noted that Nigeria’s GDP grew by 3.46 per cent in the third quarter of 2024, driven primarily by the non-oil sector, with the services industry playing a dominant role.
Cardoso reassured that the banking sector remains robust and resilient despite ongoing macroeconomic challenges.
However, he stressed the importance of strengthening banking system surveillance, particularly in light of the ongoing recapitalisation drive for deposit money banks.
He stated that the CBN would ensure the injection of quality capital into the banking system to safeguard financial stability amid both domestic and global uncertainties.
The committee identified geopolitical risks, including the Russia-Ukraine conflict and tensions in the Middle East, as factors that could influence Nigeria’s economic stability.
It also expressed concerns over the United States government’s increased tariffs on trade partners, which could impact global inflation and economic growth. The MPC reaffirmed its commitment to monitoring domestic and global economic developments, with the next policy meeting scheduled for May 19 and 20, 2025.
The decision to retain the monetary parameters comes after the National Bureau of Statistics recently disclosed that Nigeria’s headline inflation rate stood at 24.48 per cent in January 2025.
This figure, however, reflects a recalculated Consumer Price Index following the rebasing of inflation metrics. Under the previous methodology, the inflation rate was reported at 34.80 per cent in December 2024.
With inflation appearing to have moderated under the rebased CPI, there were calls from economic analysts and business groups to pause further rate increases.
