September 16, 2025/InvestmentOne Report

In August 2025 Nigeria s headline inflation rate eased to 20.12%, down 176bps from July s 21.88%. This marked the fifth consecutive monthly decline in inflation, reflecting a slower pace of price increases. Month-on-month, the CPI rose by just 0.74% in August versus 1.99% in July, a slowdown of 125bps, indicating that prices were rising far more slowly. The moderation was driven by seasonal food supply, currency stability, and tight monetary conditions.

The naira remained relatively stable and even slightly stronger by 0.23% MoM in August, trading around NGN1,531.50/USD, supported by abundant FX liquidity and rising reserves. This exchange rate stability lowered the pass-through of import costs into consumer prices. At the same time, monetary policy remained tight, with the Central Bank maintaining the policy rate at 27.50%, reinforcing high borrowing costs that curbed domestic demand. Together, currency stability and restrictive monetary policy helped dampen both food and non-food inflation pressures, sustaining the disinflation trend. 

Looking ahead to the Monetary Policy Committee (MPC) meeting scheduled for 22 23 September 2025, we anticipate the CBN may consider a modest rate cut of 0 to 100bps, given the decline in inflation and yields. The easing of inflationary pressures, coupled with lower yields, suggests that the central bank might seek to reduce borrowing costs.

However, the committee is likely to proceed cautiously, balancing the need to stimulate economic activity with the imperative of maintaining currency stability. If the inflationary trend continues to ease and FX conditions remain stable, a rate adjustment could help foster more favorable borrowing conditions without jeopardizing macroeconomic stability.

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