2025 holds out the prospect of much more stable economic conditions than either 2023 or 2024. Since mid-2023 the monetary authorities and the Federal Government have implemented policies to tackle inflation and to stabilise the currency.

The effects of these policies have not been immediate. Inflation has risen from 28.20% year-on-year in November 2023 to 34.60% y/y in November 2024. The Naira, whose US dollar value fell 49.1% in 2023, has fallen by a further 41.0% in 2024, as of 27 December. The performance of such metrics demands patience from those suffering their effects.

Economic policies take time to work and their effects are cumulative. The Central Bank of Nigeria (CBN) has raised its policy rate by 875 basis points over the past 12 months to 27.50%. The 1-year T-bill yield in the secondary market has risen from 11.77% pa to around 26.00% over the same time. Measures have been taken to reverse the flow of unfunded loans from the CBN to the government.

The foreign exchange market is liberalised today though, as is the case with many currencies, the central bank regularly intervenes. The CBN has addressed the backlog of US dollar claims that hung over the market during 2023 and early 2024, and it has introduced a new trading system. Petroleum (PMS) subsidies were finally removed, effectively, in September 2024, though partial removal of subsidies was in evidence as early as June 2023.

The response of foreign portfolio investors has been positive, with over US$1.0bn in FPI recorded by the CBN in October and again in November. In early December the Federal Government of Nigeria raised US$2.2bn in Eurobonds.

What will be the cumulative effects of these developments in 2025? We start with an examination of inflation, which has been a destructive force for households and businesses. We conclude that there are good prospects for bringing it under control in 2025, though more so in the second half of the year than during the first. We go on to examine the outlook for the policy rate of the CBN, the yields of T-bills, the prospects for the Naira-denominated government bond market, and the exchange rate.

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