T he Central Bank of Nigeria (CBN) has opted to maintain its benchmark interest rate at 27.5%, pausing after six consecutive hikes in 2024. Governor Olayemi Cardoso announced the decision following the Monetary Policy Committee’s (MPC) 299th meeting in Abuja, emphasizing economic stability and improved forex management. However, leading economists remain skeptical, warning that without stronger coordination between monetary and fiscal policies, inflation could resurge and erode recent gains.
Cardoso detailed the rationale behind the decision: the Monetary Policy Rate (MPR) remains at 27.5%, the asymmetric corridor at +500/-100 basis points, the Cash Reserve Ratio (CRR) at 50% for banks and 16% for merchant banks, and the Liquidity Ratio at 30%. The CBN cited a notable decline in inflation—from 34.8% in December 2024 to 24.48% in January 2025, according to the rebased Consumer Price Index—as justification for holding rates steady. Additionally, Nigeria’s foreign reserves have climbed to $39.4 billion, covering 9.6 months of imports, while oil production stands at 1.54 million barrels per day. Economic growth is also improving, with GDP rising by 3.46% in Q3 2024, largely driven by the non-oil sector.
“We are seeing increasing stability, particularly in the foreign exchange market,” Cardoso stated, attributing the progress to policy measures such as the Electronic Matching System.
Economists Remain Cautious
Despite the CBN’s optimism, financial analysts warn that the pause in rate hikes could backfire without complementary fiscal policies. Dr. Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise, criticized the prolonged tight monetary stance, arguing that businesses are struggling under the weight of expensive credit.
“Holding the rate at 27.5% continues to stifle businesses that rely on affordable loans. Inflation control requires structural reforms—improving food supply chains, tackling insecurity, and addressing logistics challenges—not just interest rate hikes,” Yusuf stated. He further pointed out that with a CRR of 50%, commercial banks are constrained, limiting credit availability for the real sector.
Johnson Chukwu, CEO of Cowry Assets Management, acknowledged the logic behind the rate freeze but stressed the need for policy alignment. “With inflation at 24.48% and MPR at 27.5%, we have a positive real rate, which is good for investors. Treasury Bills at 21.8% confirm this,” he noted. However, Chukwu warned that fiscal stimulus measures by the government could counteract the CBN’s tightening efforts.
“Monetary and fiscal policies need to move in sync. If one pushes liquidity while the other restricts it, we risk economic instability. The government’s expansionary policies must be carefully managed to prevent inflation from spiking again,” Chukwu cautioned, adding that external factors such as global trade disruptions and geopolitical tensions could further complicate Nigeria’s economic outlook.
Structural Concerns Persist
While the CBN remains confident in its inflation control strategy, critics argue that the recent drop to 24.48% reflects a statistical adjustment rather than a fundamental economic shift. Food inflation remains high, and underlying structural challenges—such as insecurity, flooding, and poor logistics—continue to drive price volatility.
The next MPC meeting is scheduled for May 19-20, giving policymakers time to assess the effectiveness of current measures. However, economists warn that without coordinated fiscal interventions, Nigeria’s fragile economic gains could be at risk.
“Collaboration is essential,” Chukwu stressed. “If monetary and fiscal policies remain misaligned, we could find ourselves back to square one—or worse.”
0 Comments