AS Nigeria’s Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) prepares for its 299th meeting, speculation is rife about potential changes to the country’s key policy rate. Scheduled for February 19 and 20, 2025, the meeting comes at a critical time, with price stability remaining a core priority for the CBN.
Many financial experts believe the MPC may maintain the current interest rate to sustain Nigeria’s fragile economic recovery while managing inflationary pressures.
The upcoming MPC meeting has drawn significant attention, particularly after its initial scheduling for February 17 and 18 was postponed. Analysts were concerned about delays by the National Bureau of Statistics (NBS) in releasing the rebased Consumer Price Index (CPI), an essential data point for informed policy decisions. However, with the dates now confirmed, the focus has shifted to whether the MPC will retain the current monetary policy rate (MPR) or make another adjustment.
Some financial analysts argued that the CBN has a tendency to maintain policy rates at the first MPC meeting of the year, allowing the effects of prior rate adjustments to permeate the economy.
This approach mirrors the strategy of other central banks. For example, the National Bank of Rwanda (BNR) recently kept its key interest rate at 6.5 per cent, citing the need to control inflation without disrupting economic activity. Similarly, Ghana’s MPC maintained its policy rate at 27 percent in response to persistent inflationary pressures and global uncertainties.
Ayokunle Olubunmi, Head of Financial Institutions Ratings at Agusto Consulting, emphasized that inflation and exchange rates are likely to dominate discussions at the MPC meeting. This sentiment is echoed by other experts, who point to the extensive tightening measures already implemented by the CBN and the emerging signs of stabilisation in the economy.
Since his appointment in September 2023, CBN Governor, Olayemi Cardoso has championed bold reforms aimed at stabilizing Nigeria’s economy. Under his leadership, the CBN has focused on tackling inflation, managing exchange rate volatility, and restoring confidence in the foreign exchange (FX) market.
In 2024, the CBN raised the MPR by a total of 875 basis points, moving it from 18.75 percent in 2023 to 27.50 percent by year-end. These measures were implemented against the backdrop of rising inflation, which reached 34.80 percent in December 2024, up from 34.60 per cent in November. The upward pressure on inflation was largely attributed to price adjustments in retail fuel prices, particularly Premium Motor Spirit (PMS), during the third quarter of 2024.
Despite these challenges, Governor Cardoso highlighted the successes of the tight monetary policy, including increased capital inflows, relative stability in the FX market, and a reduction in exchange rate disparities. He argued that the MPC must remain vigilant, taking a firm stance against inflation until a consistent downward trend becomes evident.
At the November 2024 MPC meeting, the Committee raised the MPR by 25 basis points to 27.50 percent while maintaining other key parameters, such as the Cash Reserve Requirement (CRR) at 50 percent for Deposit Money Banks and 16 percent for Merchant Banks, as well as the liquidity ratio at 30 percent.
Cardoso expressed optimism that sustained policy measures would foster a stable macroeconomic environment conducive to sustainable growth.
Monetary policy impacts on the economy
The CBN’s policy shifts have had significant implications for various economic indicators. For instance, the unification of multiple exchange rate windows was a critical reform aimed at eliminating arbitrage opportunities and boosting investor confidence. This policy contributed to a 79.4 percent increase in remittances through International Money Transfer Operators, which reached $4.18 billion in the first three quarters of 2024.
However, not all effects of the tight monetary policy have been positive. Aloysius Uche Ordu, an MPC member, noted that credit growth slowed significantly in 2024. Broad money supply (M3) fell by approximately N1.7 trillion in October 2024 compared to the previous month, while credit to the private sector declined by N1.9 trillion. These trends suggest a reduction in aggregate demand, which could help ease inflationary pressures but may also stifle economic growth.
Lamido Abubakar Yuguda, another MPC member, highlighted the role of strengthened collaboration between monetary and fiscal authorities in stabilizing the exchange rate and curbing inflation. He pointed to improvements in Nigeria’s balance of payments and foreign exchange reserves, driven by rising capital inflows and remittances. Yuguda argued for maintaining the current tight monetary stance to consolidate these gains.
Way forward
While some experts support the continuation of tight monetary policies, others caution against further rate hikes. Bandele Amoo, an MPC member, suggested that while inflation and exchange rate stability are improving, the effects of prior policy measures have not fully materialized. He advocated for a modest 25 basis-point increase in the MPR to sustain progress without placing undue pressure on the real sector, particularly corporate borrowers.
At the same time, financial inclusion initiatives by the CBN have helped improve the transmission of monetary policy, enhancing its overall effectiveness. The MPC has also expressed optimism about the deregulation of Nigeria’s petroleum industry, which is expected to eliminate fuel shortages and stabilize prices in the medium term.
Dr Tilewa Adebajo, CEO of CFG Advisory, noted that Nigeria’s economy is beginning to adjust to recent reforms, including fuel price stability and exchange rate unification. He projected a downward trajectory for inflation in 2025, provided the government maintains fiscal discipline and curbs speculative activities in the FX market.
To achieve sustained price stability and economic growth, experts have proposed several policy measures:Treat black-market FX traders as economic saboteurs and prosecute them accordingly. Align government spending with monetary policy objectives to prevent inflationary pressures; Diversify the economy by aggressively promoting non-oil exports, attracting foreign direct investment (FDI), and channeling remittances through formal banking systems.
The rebased CPI, expected to provide more accurate economic indicators, will support more effective policy decisions. However, without decisive action against currency speculation and fiscal indiscipline, Nigeria may continue to struggle with inflation and exchange rate instability.
As the MPC meeting approaches, the consensus among financial experts is that the CBN is likely to maintain its current policy rate. This approach aligns with the need to consolidate the gains of 2024’s monetary reforms while avoiding additional pressures on the economy. By sustaining a tight policy stance, the CBN can continue to address inflationary pressures, stabilize the exchange rate, and build a resilient macroeconomic environment.
Ultimately, achieving long-term stability will require coordinated efforts between monetary and fiscal authorities, as well as a commitment to implementing structural reforms. While challenges remain, the progress made in recent months offers a glimmer of hope for Nigeria’s economic future.
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