CBN faces tough choices on interest rate as inflation eases amid calls to sustain price, FX stability

The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) will on July 21–22 hold its 301st meeting in Abuja, with stakeholders keenly watching whether the Committee will maintain its tight monetary policy stance or begin to ease rates amid signs of disinflation and relative exchange rate stability.

At its last meeting in May, the MPC retained the Monetary Policy Rate (MPR) at 27.5 per cent, citing caution despite improving macroeconomic fundamentals.

The committee noted that narrowing gaps between official and parallel market exchange rates, falling Premium Motor Spirit (PMS) prices, and a favourable trade balance signaled easing inflationary pressures.

However, the MPC warned that reinflationary risks remained significant and that a premature rate cut could undermine the naira, which has recently gained strength on the back of high yields on Nigerian Open Market Operation (OMO) bills and sustained CBN interventions.

Analysts remain divided ahead of Monday’s meeting.

Afrinvest Securities Limited projects that the MPC will keep its current policy stance, citing external risks, food supply shocks, and uncertainties over Q1 2025 rebased GDP data.

Afrinvest protected inflation to ease to 22.2 percent in June, supported by naira appreciation and last year’s high inflation base.

Conversely, Bismarck Rewane, Managing Director of Financial Derivatives Company (FDC) Limited, has called for a 25 basis-point cut to 25 percent, arguing that elevated borrowing costs are stifling small businesses.

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FDC expects headline inflation to drop in June, citing declining PMS prices and stable exchange rates.

CBN governor Olayemi Cardoso has maintained that sustaining FX stability and consolidating market gains remain the bank’s top priority, warning that the ultimate goal is to bring inflation down to single digits in the medium term.

The meeting outcome is expected to shape Nigeria’s economic trajectory in the second half of 2025.