May 21, 2025/InvestmentOne Update

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) held their 300th meeting of the year where they voted to:
– Maintain monetary policy rate (MPR) at 27.50%.
– Held the Asymmetric corridor around the MPR at +500/-100bps.
– Retained the Cash Reserve Ratio (CRR) of Commercial banks at 50.00% and Merchant Banks at 16.00%
– Retained the Liquidity Ratio at 30.00%.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) convened its 300th meeting over the past two days to address the current economic situation in the country. The MPC decided to hold the Monetary Policy Rate (MPR) at 27.50% from. This decision underscored the committee’s commitment to its mandate of ensuring price stability.

They noted that monetary policy is gaining traction alongside fiscal measures aimed at tackling heightened food inflation and believe that price stability will be achieved in the near term.

The committee observed that while the MPR has been effective in moderating demand, as inflation the current inflation reduced to 23.71% on the back of falling food prices and stable PMS prices due to the resumption of the naira to crude deal with Dangote refinery. The MPC resolved to strengthen its collaboration with fiscal authorities to mitigate inflationary pressures.

The committee expressed optimism on the economy taking note of the recently improved rating from Fitch as this reiterates the committees’ commitments to fostering growth, this improved rating reflects the stability in the economy and bodes well for foreign investment and further developments.

The MPC also highlighted the increasing foreign net reserves growing over 500%, this showed inflows into the economy emphasizing on the increase in inflows from gas and non-oil exports.

The build-up of external reserves has bolstered confidence in a more stable exchange rate, with plans to enhance inflows, particularly through diaspora remittances. The Committee members acknowledged the efforts of the government and private sector to increase domestic oil refining capacity, which will help reduce foreign exchange expenditure on refined petroleum products.

The MPC noted the decline in foreign exchange volatility and resilience of the banking system, with key financial indicators reflecting a healthy system. However, the need for close monitoring remains as recapitalization efforts continue. According to the CBN chief, the external reserves stood at USD38.90 billion as of May 18, up from USD37.82 billion by the end of March 2025, reflecting inflows from diverse sources and providing coverage for 7 months of imports of goods and services.

We believe the Monetary Policy Committee (MPC) is entering a new phase of policy calibration, driven by recent disinflationary signals in key components of the Consumer Price Index (CPI). The rebasing of the CPI has introduced a more reflective basket, while relative price stability in key segments especially food and petroleum products has helped moderate inflation expectations. With headline inflation showing early signs of easing and exchange rate volatility subsiding, the immediate threat to price stability appears to be receding.

In this context, we expect the MPC to maintain a dovish bias in the near term, with a preference for policy continuity over further aggressive tightening. While the benchmark interest rate may remain elevated to anchor inflation expectations and sustain investor confidence in naira assets, the urgency for additional rate hikes has diminished.