September 22, 2025/CSL Research
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) convenes today for a two-day meeting to decide on its fourth interest rate policy decision of the year, with the outcome expected by early Tuesday afternoon. We highlight that since the last MPC meeting in July, there have been notable positive developments on both the external and domestic fronts, which has strengthened the case for a potential shift towards an accommodative policy stance.
Externally, the most significant shift is the resumption of rate cuts by the US Federal Reserve, which has effectively eased global monetary conditions. This move reduces the risk of capital flight from emerging markets like Nigeria and gives the CBN greater flexibility to lower rates without triggering sharp outflows from foreign portfolio investors. Moreover, we note that the Fed’s dovish pivot also signals a broader decline in global borrowing costs, which could help Nigeria manage its external financing needs more comfortably (see CSL Macro Report: “Fed Rate cut could spur fresh Eurobond issuance for Nigeria”, 19 August).
Additionally, key external indicators like the foreign reserves, trade balance, and the exchange rate have also been encouraging. Notably, the external reserves have been steadily increasing over the past two months, rising to US$42.0 billion as of the end of last week, supported by improvements in the trade balance as well as sustained offshore investor interest in the fixed income and equity markets. At the same time, the Naira has appreciated by over 3% in recent weeks to ₦1,487/US$, reaching its strongest level in more than seven months, aided by continued liquidity support from the CBN and renewed investor confidence.
We note that these trends have helped stabilise the currency market, reducing one of the major sources of inflationary pressure over the past year. Meanwhile, on the domestic front, clear signs of disinflationary momentum have also reinvigorated the case for the apex bank to ease interest rates. Particularly, headline inflation eased for the fifth consecutive month, moderating to 20.1% y/y in August.
Against this backdrop, we expect the MPC to deliver a measured rate cut of 50-100 basis points at tomorrow’s meeting. A shift toward monetary easing would help reduce borrowing costs, ease funding pressures for businesses, and support consumer credit growth, thereby providing timely stimulus to domestic economic activity at a period when growth remains below potential. We also anticipate that the MPC may narrow the asymmetric corridor around the policy rate, aiming to strengthen control over interbank liquidity and guide short-term interest rates lower. If implemented, this policy pivot would have meaningful implications for the fixed income market. In particular, we maintain a positive outlook on local
government bonds, especially at the long end of the curve, where a rate cut and a more accommodative policy stance could drive relative outperformance in the months ahead.
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