Nigeria's Monetary Policy Committee to Retain Interest Rates Despite Inflation Slowdown

Strategic Insights -

Despite the sustained stability in the exchange rate and slowing core inflation, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is unlikely to ease interest rates in the second half (H2) of 2025. According to Prof. Uche Uwaleke, President of the Capital Market Academics of Nigeria (CMAN), the MPC will retain the Monetary Policy Rate (MPR) at 27.5 percent due to several compelling variables. These include sustained Federation Account Allocation Committee (FAAC)-induced liquidity pressures and pass-through effect to exchange rates, the need to preserve real returns and attract portfolio flows, and the International Monetary Fund's (IMF) recommendation for tight monetary conditions.

Key Takeaways:

  • The MPC will retain the MPR at 27.5 percent in the second half of 2025, despite slowed inflation, due to sustained liquidity pressures and exchange rate pass-through effects.
  • FAAC-induced liquidity pressures and the need to preserve real returns and attract portfolio flows are key drivers for maintaining tight monetary conditions.
  • The IMF recommends maintaining positive real interest rates to restore macroeconomic stability, which aligns with the MPC's consideration to retain the MPR.
  • Security challenges and governance bottlenecks could constrain private sector response to reforms unless implementation accelerates across states.
  • Nigeria's gross external reserves reached approximately $39 billion as of 28th July 2025, providing an estimated 9 months of import cover.
  • The naira is trading at around ?1,533 per USD in the official Nigerian Foreign Exchange Market (NFEM) and around ?1,530-?1,537 in the parallel market, indicating near convergence of the two rates.
  • Analysts from Renaissance Capital estimate that the naira is still overvalued by about 26% compared to its historical real effective exchange rate average.
  • The MPC will maintain stability within a narrow range, supported by CBN FX market reforms and sustained interventions.
  • The $1.1 billion Eurobond bullet repayment due by November will have a subdued impact on FX reserves.

Statistics:

  • 27.5 percent: Monetary Policy Rate (MPR) retained in the second half of 2025.
  • $39 billion: Nigeria's gross external reserves as of 28th July 2025.
  • 9 months: Estimated import cover provided by gross external reserves.
  • ?1,533 per USD: Official Nigerian Foreign Exchange Market (NFEM) rate.
  • ?1,530-?1,537 per USD: Parallel market rate.
  • 26%: Estimated overvaluation of the naira compared to its historical real effective exchange rate average.
  • $1.1 billion: Eurobond bullet repayment due by November.

Sources:

  • Uche Uwaleke, President of the Capital Market Academics of Nigeria (CMAN)
  • Central Bank of Nigeria (CBN)
  • International Monetary Fund (IMF)
  • Renaissance Capital
  • Federation Account Allocation Committee (FAAC)