MPC: Analysts Eye CBN Interest Rate Cut as Inflation Tempers
Broadstreet analysts and Nigerian private sector financial market participants anticipated a sharp reduction in the policy rate as the Monetary Policy Committee (MPC) begins its final meeting for 2025.
The Central Bank of Nigeria (CBN) is expected to cut benchmark interest rate as the country’s headline inflation softens since its last monetary policy committee meeting in Sept.
The market, investment firms’ project monetary authority to axe benchmark interest rate below 27% after 50 basis points cut in September.
Anchored on macro indicators, economists at Cordros Capital Limited said the development in the economy suggests scope for a slightly deeper round of easing than the 50bps cut delivered in September.
MPC has maintained a cautious posture on interest rate adjustments in previous meetings, despite persistent disinflation and naira stability.
According to analysts, this restraint largely reflects the slow pace of inflation moderation alongside elevated global uncertainties, amplified by higher global tariffs and uneven risk sentiment.
Although the MPC, for the first time in over five years, initiated an easing cycle by cutting the MPR at the September policy meeting, the modest 50bps reduction and the Committee’s guarded tone underscored its aim to avoid premature policy relaxation.
However, the balance of risks has shifted meaningfully in recent months. “For us, a more favourable global backdrop, faster domestic disinflation, and sustained naira appreciation collectively strengthen the case for a more decisive monetary easing stance.
“Given these improvements, we believe the MPC is now in a stronger position to extend the easing cycle and could opt for a 100bps cut in the MPR to support growth while still keeping its inflation goals in focus.
“This would bring the MPR to 26.00% by year-end. On the other hand, we expect all other policy parameters to be retained, reflecting the Committee’s preference for a measured and orderly recalibration of monetary conditions”, Cordros Capital said.
Supporting the expectation, several investment firms are anticipating a moderate reduction in Nigeria’s monetary policy rate this week, a development seen as negative for the banking sector.
The latest Consumer Price Index (CPI) report from the National Bureau of Statistics (NBS) shows that Nigeria’s headline inflation slowed again in October 2025, dropping to 16.05% y/y from 18.02% in September.
According to analysts, this marks the sixth straight month of disinflation and comes in below our projection of 17.83%, reinforcing that price pressures are easing faster than expected.
Notably, October’s figure is now the lowest since 2022—reflecting the impact of a more orderly FX market, softer energy costs, and lingering favourable base effects following the CPI rebasing earlier in the year.
Analysts at Cowry Asset Management Limited expect the disinflationary trend to continue in the near term, helped by a more stable exchange rate, improved food supply dynamics, and the lingering effect of favourable base-year comparisons.
The firm noted the recent uptick in month-on-month inflation reminds us that short-term pressures are still very much alive. The food basket remains the most vulnerable segment, with supply chain disruptions, climate challenges, and persistent security concerns in key producing regions continuing to limit the pace of relief for consumers.
Core inflation should also ease gradually, though cost pressures from transportation, housing, and essential services will keep the decline slow.
“While energy prices have been quite volatile in recent weeks, we do not expect this to significantly distort headline inflation, largely because energy has a relatively small weighting in Nigeria’s CPI structure.
“This naturally dampens the direct impact of pump price adjustments or global oil price swings on the broader inflation basket. Overall, we project headline inflation to moderate further to around 15.52% in November 2025”.
MPC is meeting at a pivotal moment, as steadily easing inflation since September has strengthened market expectations that another round of monetary easing is imminent.
With headline inflation continuing to decelerate, investors and businesses alike anticipate that the MPC may deliver an additional 100 to 200 basis-point cut to the Monetary Policy Rate, extending its dovish stance in a bid to stimulate economic activity.
“Yet, beneath this improving inflation outlook, the real economy continues to struggle with elevated operating costs, fragile consumer demand, and multiple structural pressures that have kept growth momentum muted.
“Against this backdrop, the Committee faces a delicate balancing act—providing sufficient policy support to ease financial conditions and sustain economic activity, while ensuring that inflation remains firmly on a downward path in an environment still marked by supply constraints and lingering macroeconomic vulnerabilities”, Cowry Asset explained.
Nigeria’s monetary policy decision often mirrored the U.S interest rate direction. In October, US Fed rate cut in rate for second time in Q4, supported global monetary easing.
“Domestically, inflation has decelerated more sharply, and FX liquidity has remained robust, with the naira showing strength on the back of the aforementioned.
“Given a more favourable macroeconomic backdrop, we expect the MPC to adopt a firmer easing bias and lower the Monetary Policy Rate (MPR) by 100bps to 26.00%, while keeping other parameters constant”, Cordros Capital Limited said in a note.
Nigerian economy maintained resilient growth in Q3, supported primarily by improved business conditions and easing cost pressures.
However, seasonal factors, including the peak rainy and lean seasons, along with oil-related disruptions, likely slowed growth somewhat relative to the previous quarter.
The agricultural sector is estimated to have expanded by 2.70% y/ear on year. The slight moderation largely reflects softer crop production during the lean season, partly offset by increased livestock output.
In the manufacturing sector, weaker cement production, owing to reduced construction activity amid heavier rainfall alongside still subdued consumer demand, likely tempered overall manufacturing growth.
Growth in the trade subsector may also have improved slightly, supported by a gradual pick-up in consumer spending. On the other hand, tight disposable incomes and elevated borrowing costs are likely to have kept real estate activity subdued.
Overall, real GDP grew by 3.90% year on year, reflecting softer momentum in both the oil and non-oil segments. The stable exchange rate also afford the CBN to reduce interest rate. The naira extended its recent gains over the review period, supported by stronger foreign portfolio inflows and still-subdued import demand.
Total inflows into the Nigerian Foreign Exchange Market (NFEM) climbed to a five-month high of NGN5.15 trillion in October, reversing September’s decline.
Foreign portfolio investors were the main driver, as inflows surged by 120.7% m/m to USD2.94 billion, accounting for 57.1% of total market receipts. Local FX supply also strengthened, rising by 28.4% m/m to USD1.83 billion.
Against this backdrop, the naira appreciated against the dollar while external buffers have improved in tandem. According to the CBN Governor, the gross FX reserves reached USD46.70 billion as of 14 November, implying a year-to-date increase of 18.5%.
The build-up has been driven by stronger oil inflows, robust FPI receipts, measured CBN intervention and the successful issuance of the USD2.35 billion Eurobond on 5 November.
Looking ahead, resilient FX liquidity and firm market confidence should keep the naira broadly stable, with the exchange rate projected to close the year at around NGN1,450.00/USD, assuming no major shock to global risk sentiment or oil prices, Cordros Capital said. Banks’ Placement at CBN Window Falls by 40% Amidst OMO Actions
