BREAKING: CBN retains MPR at 27.5%

The Central Bank of Nigeria (CBN) on Thursday retained its benchmark interest rate known as the Policy Rate (MPR) at 27.5 percent, following the rebased consumer price index (CPI).

The National Bureau of Statistics (NBS) on Tuesday rebased the CPI 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.

This was announced by the CBN Governor, Yemi Cardoso, at the post-MPC press briefing on Thursday.

The decision reflects the committee’s cautious approach to monetary policy, as it continues to evaluate macroeconomic conditions before making any adjustments.

The decision to hold rates comes at a time when interest rates on treasury bills have trended downwards to 19%, with short-term and long-term yields converging, resulting in a flat yield curve.

This signals expectations that monetary conditions may remain tight in the short run.

According to the MPC communique, the decision to maintain rates was driven by “recent macroeconomic indicators that suggest improved market stability”, particularly in the foreign exchange market and inflation trends.

Governor Cardoso emphasised that while the exchange rate has begun to appreciate due to recent monetary interventions, the committee remains cautious about inflationary risks, particularly food inflation.

“The Committee noted that core inflation remains a concern, even as recent data indicates a slowing trajectory. Food prices continue to exert upward pressure, and thus, premature monetary easing could reverse recent gains,” the communique stated.

The MPC also acknowledged the impact of the rebased Consumer Price Index (CPI) by the National Bureau of Statistics (NBS), which adjusted item weights to reflect current consumption patterns.

The communique noted that “improved security measures in agricultural regions, coupled with policy actions to enhance food supply, should support the continued moderation of inflation in the coming months.”

The committee expressed confidence that CBN-led foreign exchange market reforms, including the introduction of the B-Match system and Nigeria Foreign Exchange Code, would enhance market stability, transparency, and investor confidence.

Despite the CBN’s cautious stance, manufacturers and business leaders have called for an interest rate cut, as lending rates have soared to as high as 39%, making it difficult for businesses to access credit and finance expansion.

Many argue that high borrowing costs are stifling industrial growth and limiting economic expansion. However, the CBN remains firm in its approach, focusing on price stability and ensuring inflation continues its downward trend before any policy shift.

The CBN’s decision to hold rates steady underscores its priority of maintaining price stability while supporting economic recovery. By keeping rates unchanged, the central bank aims to give ongoing policy measures more time to take full effect before considering any adjustments.

According to the communique, the committee “reiterated the importance of coordination between fiscal and monetary authorities to sustain economic growth while addressing inflationary risks.”

Market analysts suggest that any potential rate cuts will depend on how inflation trends evolve in the next few months. If inflation continues to moderate and exchange rate stability improves, the CBN could begin considering a more accommodative monetary policy stance in the second half of the year.

The MPC has signaled that it will “remain data-dependent and continue to assess economic conditions before adjusting rates.”

While inflation is showing early signs of slowing, the committee remains cautious about external shocks, food supply constraints, and exchange rate movements.

For now, interest rates remain elevated, but stability remains the focus—a stance that aligns with broader trends in Sub-Saharan Africa, where central banks are treading carefully to avoid policy missteps. The next MPC meeting will be closely watched to see whether further inflation declines and exchange rate improvements could open the door for a policy shift.

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