By Anthony Otaru
After the National Bureau of Statistics (NBS) confirmed another month of easing inflation, slowing to 16.05 per cent from 18.02 per cent, many economic watchers anticipated that the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) would respond with a modest reduction in the Monetary Policy Rate (MPR).
Instead, the Committee took a more cautious path, retaining the benchmark interest rate at 27 per cent for the fourth consecutive time in 2025.
The decision, which surprised several analysts, reflects the MPC’s attempt to balance optimism over improving inflation numbers with lingering vulnerabilities in the broader economy.
In the Committee’s view, the recent moderation in prices, though encouraging, is not yet strong or stable enough to justify a shift toward monetary easing.
By holding the rate, the apex bank signalled its commitment to consolidating the progress made so far while preventing any policy reversal that could reignite inflationary pressures.
This deliberate stance sets the tone for the rest of the Committee’s reasoning: that Nigeria’s economic recovery remains fragile, and that monetary policy must remain steady, even if unpopular, to safeguard the gains already recorded.
With renewed optimism about the direction of inflation, the MPC again held the benchmark interest rate at an unprecedented 27 per cent, its fourth consecutive hold in 2025.
The Committee insisted that the decision was designed to address persistent economic vulnerabilities while preserving stability in a fragile macroeconomic environment. It was, in many respects, a tricky balancing act for monetary authorities navigating Nigeria’s uneven recovery.
The origin of such a steep rate environment can be linked to a trifecta of macroeconomic pressures: stubborn inflation, currency depreciation, and external shocks weighing down the domestic economy.
These conditions have, over time, compelled the CBN to adopt tighter monetary stances aimed at stabilising prices, protecting consumer savings, and sustaining investor confidence.
The MPC’s decision to maintain the rate at 27 per cent is not, in its view, merely reactionary. It reflects a long-term strategy of taming inflation while preventing a reacceleration of price pressures. By keeping borrowing costs elevated, the apex bank hopes to moderate demand, slow credit expansion, and reinforce the downward trend in inflation.
For analysts, however, the decision was unexpected—coming on the heels of improving inflation data released by the NBS. Many had projected a modest rate cut as a signal of confidence in the recent deceleration of price levels.
At the 303rd MPC meeting, CBN Governor Yemi Cardoso announced that all policy parameters were retained, except for a minor adjustment to the asymmetric corridor. The Committee kept the Cash Reserve Ratio (CRR) for Deposit Money Banks at 45 per cent and 16 per cent for Merchant Banks, while the CRR on non-TSA public sector deposits remained at 75 per cent. The liquidity ratio also held at 30 per cent, with the symmetric corridor adjusted to +50/-450 basis points around the MPR.
As the country continues to grapple with inflationary constraints and a slow recovery, the MPC’s stance reflects a deliberate attempt to anchor inflation expectations without undermining economic activity.
Cardoso explained, “The Committee’s decision was underpinned by the need to sustain the progress made so far towards achieving low and stable inflation. The steady deceleration across headline, core, and food inflation in October suggests that the lagged effect of previous policy tightening will continue to filter through. Maintaining our current stance allows these measures to transmit effectively to the real economy.”
At its core, the MPC’s decision represents a high-stakes equilibrium. On one side lies the mandate of controlling inflation, which has eroded purchasing power and heightened social unease.
A rate as high as 27 per cent is intended to limit credit expansion, suppress demand, and cool inflation, a conventional but powerful tool.
The Governor noted that the current stance gives the Committee room to “monitor unfolding economic trends” while ensuring inflation continues toward the CBN’s medium-term target of 9–13 per cent.
Yet the costs are high. Elevated rates constrict credit availability, particularly for SMEs that contribute more than half of Nigeria’s GDP. Lending rates consistently above 30 per cent have already discouraged private investment, contributing to a modest 2025 GDP projection of 3.9 per cent—barely above population growth of 2.4 per cent.
A troubled manufacturing sector, burdened by high input prices and perennial power shortages, faces renewed headwinds. Consumer spending also remains subdued amid stagnant wages.
The Committee’s calculations also considered global conditions. With the US Federal Reserve hinting at possible rate cuts, Nigeria risks capital flight if its monetary stance diverges aggressively.
Meanwhile, intensifying US–China trade tensions could dampen global demand and restrict export prospects for an oil-dependent economy where crude accounts for 90 per cent of foreign earnings.
Domestically, the MPC acknowledged significant progress in the ongoing bank recapitalisation exercise—16 banks now being fully compliant. This strengthens the financial system while also reinforcing the case for patience before easing.
Critics argue that the hold is overly cautious. Analysts at Cowry Asset Management projected a 50-basis-point cut, citing improving inflation dynamics and a more stable naira.
“The Committee faces a delicate balancing act, providing sufficient policy support to ease financial conditions while keeping inflation on a firm downward path,” they said, noting persistent supply-side constraints in food and energy.
The voting pattern indicated intense internal debate, with some members concerned that premature easing could trigger renewed currency depreciation and imported inflation.
While tight monetary policy has helped stabilise the foreign exchange market, high lending costs continue to obstruct expansion, particularly in sectors such as agriculture and technology—both targeted by government initiatives for accelerated growth.
On the positive side, Cardoso emphasised that the MPC’s data-driven approach has strengthened investor sentiment, contributing to a 15 per cent year-on-year rise in FDI inflows.
Analysts expect a possible easing cycle in early 2026 if the disinflation trend remains intact. Some experts predict headline inflation may dip further to 15.52 per cent by the end of November, which could justify a 100-basis-point corridor adjustment to boost liquidity without overheating the economy.
Still, significant risks loom: volatile global oil prices, election-year fiscal pressures, and climate-related disruptions could easily reverse recent gains.
The MPC’s 27 per cent rate hold is more than a routine decision—it signals a cautious leadership trying to steer Nigeria through uncertain waters. By prioritising inflation control, the Committee seeks durable stability over short-lived stimulus.
With reserves gradually strengthening and inflation cooling, the balancing act is leaning toward optimism. Policymakers, businesses, and citizens must now align their efforts to turn this monetary pause into a pivot toward inclusive growth.
The next MPC meeting, likely in January 2026, will indicate whether the Committee believes enough progress has been made to justify easing—or whether more tightening is required.
A Professor of Finance and Capital Market, Uche Uwaleke, welcomed the MPC’s decision but stressed that its effectiveness will depend on how banks respond.
“I consider the MPC decision to maintain the MPR at 27 per cent, while keeping CRR and Liquidity Ratio unchanged, a welcome development,” he said.
He commended the narrowing and asymmetry of the standing facility corridor to +50/-450 basis points, describing it as a form of cautious operational easing—despite the headline MPR remaining elevated.
“With the CBN’s lending window now cheaper, banks face lower marginal funding costs, which should ordinarily reduce interbank volatility and encourage lending to SMEs,” he said.
But he warned, “The real challenge is whether banks will translate this corridor adjustment into actual lower lending rates.”
A Financial Economist at Lagos Business School, Dr Obinna Okoye, described the MPC stance as “expected but tough,” arguing that Nigeria still faces high inflation and currency instability.
“The MPC had limited room to manoeuvre. Inflation remains high, and any loosening would have worsened the foreign exchange situation,” he said.
However, he cautioned that high rates continue to strain borrowing and dampen private-sector growth.
The Head of Research at ProMarket Analytics, Aisha Abdulrazaq, said the hold signals that the CBN is prioritising macroeconomic stability above short-term expansion.
“Retaining the rates suggests the CBN wants to send a strong message: inflation control comes first. But the cost is that SMEs and manufacturers will struggle even more with expensive credit,” she stated.
