The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) concluded its 300th meeting on May 20, 2025, CHIMA NWOKOJI in this report looks at the rationale, market expectations and transmission effects on the economy.
THE MPC in it’s most recent meeting, came up with a decisive stance that has sparked widespread interest across financial, industrial, and public sectors.
Amid a complex macroeconomic landscape, the MPC unanimously resolved to maintain all key monetary parameters, citing the need for economic stability and measured support for growth.
In a cautious yet calculated move, the MPC voted to: Retain the Monetary Policy Rate (MPR) at 27.50 per cent;
Maintain the asymmetric corridor around the MPR at +500/-100 basis points; Retain the Cash Reserve Ratio (CRR) for deposit money banks, at 50 per cent and for merchant banks at 16 per cent and Hold the Liquidity Ratio steady at 30 per cent.
The decision, though expected by many market watchers, marks a critical juncture in Nigeria’s monetary policy trajectory. Over the last 20 months, the MPC has raised rates six times, held rates twice, and implemented no cuts—underscoring its inflation-targeting priority.
Rationale behind the retention
The MPC’s decision came on the back of signs of economic progress, particularly in inflation trends, external reserves, and exchange rate stability. The committee noted the narrowing gap between the official Nigeria Foreign Exchange Market (NFEM) and Bureau De Change (BDC) rates, a surplus in the balance of payments, and a drop in petrol prices from N925 to N890 per litre. These indicators collectively support a more stable macroeconomic environment.
Inflation, a persistent challenge in the Nigerian economy, showed signs of moderation. The headline inflation rate dropped to 23.71 per cent in April 2025, from 24.23 per cent in March, while food inflation eased to 21.26 per cent. Similarly, core inflation declined to 23.39 per cent from 24.43 per cent the previous month. These movements, although marginal, suggest an inflection point.
Renowned economist and CEO of Financial Derivatives Company, Mr. Bismarck Rewane, hailed the MPC’s decision, stating: “There were no surprises. The Central Bank governor was very clear. The Monetary Policy Committee was very clear that the target is stability—stability in prices, monetary conditions, and the currency. Those were the main issues that were raised. And as expected, the markets loved it.”
According to Rewane, the naira has traded within a relatively stable range of N1,560 to N1,630 per dollar, while net external reserves rose significantly from $4 billion to $21 billion, thanks to a rebound in supply growth from 17.3 per cent to 24 per cent. He described the MPC’s posture as a “wait and see approach,” emphasizing that the easing of inflation and reduction in uncertainty warranted a pause in tightening.
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The Managing Director/ CEO, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the decision to hold the rates was in line with the expectation of many analysts.
“It is a welcome development because I believe that the monetary situation in the economy is already tight enough, so I was not expecting that there could be or there would be any further tightening,” said Yusuf.
“ I believe that what the MPC has done was to be very cautious in its approach to monetary policy, to be cautious not to ease the rate at this time, because many of us feel that the rates at this time are already very high.
‘’But I also agree with the CBN that this is a time to be very cautious to see what the full impacts of the disruption that has been caused by the Trump tariffs will be for the global economy.”
Cautious optimism in financial markets
Last week, the NGX All-Share Index (NGXASI) showed steady growth over the week, rising from 109,028.62 points on May 23 to 111,742.01 points on May 30, marking a solid 2.49 per cent increase week to day (WTD).
Following the MPC’s announcement earlier, the Nigerian equities market rose by 0.03 per cent, translating to a N20 billion gain. Investors responded positively to the policy stance, particularly in fundamentally strong stocks like Nestle Nigeria Plc, whose share price jumped by N133.10 (10 per cent), from N1,331 to N1,464.10. Although Aradel Holdings declined by N43 (8.55 per cent), the broader market sentiment turned optimistic.
According to analysts at Meristem Research, “Overall, the moderation of inflation, relative stability in the exchange rate, alongside bank recapitalisation, has helped to boost investors’ sentiment.” They had predicted a “hold” stance, aligning with expectations of extended monetary accommodation.
At the close of trading on May 20, the Nigerian Exchange Limited (NGX) All-Share Index (ASI) ticked upward from 109,697.83 to 109,730.47 points, while market capitalization inched up from N68.945 trillion to N68.965 trillion. This brought year-to-date returns to +6.61 percent, despite earlier sell pressure during the day.
MAN and LCCI express concerns
Expectedly, not all stakeholders cheered the MPC’s decision. The Manufacturers Association of Nigeria (MAN) criticized the CBN for maintaining a high interest rate amid global trends of monetary easing. MAN argued that retaining the MPR at 27.5 per cent burdens domestic manufacturers with high borrowing costs and stifles productive capacity.
“CBN’s continued decision to maintain the MPR at 27.5 per cent, despite a global wave of interest rate reductions aimed at revitalising economic productivity and combating stagflation, is deeply concerning,” MAN stated. It called for “a significant cut in the benchmark interest rate to reflect current realities and ease the credit burden on manufacturers.”
Similarly, the Lagos Chamber of Commerce and Industry (LCCI) expressed reservations about the tight monetary policy, citing challenges faced by businesses in accessing affordable credit.
Growth prospects and structural reforms
Despite these voices of dissent, the CBN remains optimistic about Nigeria’s growth outlook. Real GDP grew by 3.84 percent in Q4 2024, up from 3.46 per cent in Q3, driven by improvements in both oil and non-oil sectors, particularly services. The gross external reserves rose to $38.90 billion as of May 16, 2025—an increase of 2.85 percent from end-March levels—equivalent to 7.6 months of import cover.
Furthermore, the World Bank alluded that Nigeria recorded 110.0 per cent y/y increase in FPIs from $6.4bn in 2023 to $13.4 billion in 2024 and this increase was supported by monetary policy reforms from the CBN.
The balance of payments (BOP) surplus narrowed to $1.10 billion in Q4 2024, down from $4.21 billion in Q3, reflecting a moderation in the current account surplus. Nonetheless, these figures signal resilience in Nigeria’s external sector.
However, the MPC acknowledged lingering inflationary pressures linked to elevated electricity tariffs, strong FX demand, and long-standing structural deficiencies. It welcomed Federal Government initiatives aimed at bolstering local production, reducing FX demand, and moderating pass-through effects on domestic prices.
The Committee also urged continued reforms in the FX market to sustain confidence and called on the fiscal authorities to enhance non-oil exports, particularly in gas and solid minerals, to reduce dependency on oil.
Yet, downside risks remain. Members flagged a recent decline in crude oil prices, attributed to increased production from non-OPEC countries and uncertainties from U.S. trade policy. This could pose challenges for fiscal planning and budget execution.
The MPC reaffirmed the robustness of Nigeria’s banking sector, citing improvements in performance indicators and progress in the ongoing recapitalization exercise. Members emphasized the importance of CBN’s regulatory oversight to ensure compliance with macroprudential standards and safeguard financial system stability.
Outlook and Next Steps
Looking ahead, the CBN has assured that it will continue monitoring both domestic and international trends to recalibrate policy responses accordingly. The next MPC meeting is scheduled for July 21–22, 2025, and stakeholders anticipate that by then, further data on inflation, FX markets, and GDP will help shape the next move.
According to Rewane, while food prices might see a “little bit” of decline, household costs such as rent and electricity are expected to climb. “People are spending better now,” he noted, projecting a GDP growth rate of 3.46 percent, which is higher than the population growth rate—a positive signal for per capita income.
The CBN’s 300th MPC meeting has delivered a message of cautious optimism. By holding the line on interest rates and other monetary tools, the MPC seeks to consolidate recent gains in inflation moderation, FX stability, and investor confidence while giving space for structural reforms to gain traction. While divergent opinions from the real sector highlight the ongoing balancing act between stability and growth, the overall sentiment suggests that Nigeria is on a path—albeit gradual—toward macroeconomic consolidation.
Analysts at Cordros Securities said market participants had largely anticipated the MPC’s decision to hold the policy rate and had begun re-pricing yields downward ahead of the MPC meeting.
The Cordros Capital analysts stated that ‘’while no explicit guidance was provided on the direction of future policy moves by the CBN,’’ they believe the MPC will remain data-dependent, closely tracking trends across inflation, exchange rate movements, and broader macroeconomic conditions.’’
They pointed out that ‘’global headwinds—particularly the lingering impact of trade restrictions and tariffs—pose additional risks to short- to medium-term stability, which further justifies a cautious policy stance in the interim.”
As always, the months ahead will be critical in determining the effectiveness of these monetary decisions in the face of both local and global headwinds.
and then