MPC: Analysts Differ on Monetary Easing, Rule Out Interest Rate Hike
A slew of Broadstreet analysts have expressed different views and expectations about Nigeria’s monetary policy direction following persistent disinflation and improved macro indicators. The market anticipates a rate cut as the monetary authority is set to meet this week, but others think monetary easing could be delayed till the latter part of the year.
Struggling about the timing and readiness of the Central Bank of Nigeria (CBN) monetary policy committee (MPC) to cut rates, there was no consensus among sample investment banking firms notes on monetary easing. Nigeria has witnessed disinflation for three consecutive months following the rebased consumer price index, though headline inflation rate remained elevated at 22.22%.
Some analysts think the hot red inflation condition, though declining, isn’t sufficient for a benchmark interest rate cut, as the Monetary Policy Committee of the Central Bank of Nigeria (CBN) is scheduled to meet on July 21–22, 2025, to reassess monetary aggregates in light of recent inflation and macroeconomic trends.
Economists told MarketForces Africa that though Nigeria is in growth-starved conditions, Nigeria’s inflation rate is significantly outside CBN’s target. “The Apex Bank has zero luxury to cut rate despite naira and inflation stability.
“The market is already on self-correction with declining yield on government securities; cutting rates would bring down spot rates on naira assets, and this could force foreign portfolio investors to exit positions. That would be worst for the country, as a fresh capital outflow would worsen exchange rate stability”.
Offshore investors exited positions in the first quarter, and it costs $4.7 billion for the CBN to defend the naira from falling rapidly though several FX interventions.
However, capital inflows have rebounded since global financial pressures eased in May. The elevated naira yields and a stable FX market have continued to attract foreign portfolio investments and bolster investor confidence.
Specifically, inflows from foreign investors surged by 315.0% to USD 2.73 billion in June, the highest since March 2019, from USD 657.4 million in April, with foreign portfolio investors inflows accounting for 97.2% of total foreign inflows. The rebound in inflows led to a decline in CBN interventions as demand pressures waned, Cordros Capital Limited said in its pre-meeting report.
Tolu Ogunsina, a senior economist with LSintelligence Associates, said it is very unlikely to hike rates either. In a chat with MarketForces Africa, Ogunsina highlighted that it will be unlikely for the government to achieve a $1 trillion gross domestic product (GDP) target with double-digit interest rate.
According to him, Nigeria’s private sector is already under intense pressure, and some have scaled back operations. A higher interest rate would attract hot money into the economy, but the frenzy will fizzle out in no time.
“The CBN is in a dilemma; rate adjustments would likely be on hold until the third quarter of 2025 for economic reform gains to be absorbed into key macro indicators,” he said.
In its note, investment firm Cowry Asset Limited supported the rate hold decision. “With inflation showing a steady disinflation trend and the exchange rate remaining relatively firm on the back of reform-led confidence, we anticipate a policy hold stance”, Cowry Asset Limited projected.
Analysts said the committee maintains its data-dependent, cautious posture to balance price stability with economic recovery momentum in forming its rate decision this week.
Since its last convening, global economic pressures have moderated, while domestic inflation has continued on a downward trajectory. Concurrently, the naira has shown signs of relative stability, supported by improved foreign exchange liquidity and reduced demand-side pressures.
In light of these developments, analysts at Cordros Capital Limited said they believe the monetary policy committee may be inclined to reassess its current policy stance.
“With key macroeconomic indicators pointing to a more stable outlook, the Committee could initiate a gradual shift towards monetary policy easing”, Cordros Capital Limited said in its pre-meeting note.
Analysts said they expect any adjustment to be measured, anticipating a 50bps reduction in the Monetary Policy Rate (MPR), reflecting a cautious approach in a bid to balance the need to support economic growth with its mandate to ensure price and exchange rate stability.
Analysts said economic activity remained on a firm upward trajectory in Q2-25, supported by easing inflationary pressures and naira stability, both of which have strengthened business confidence and production.
The CBN composite PMI averaged 52.2 points in second quarter of 2025 from 51.3 points in Q1 indicating broad-based expansion across the agriculture, industry, and services sectors.
Although crude oil production was somewhat volatile, average output remained above 2024 levels, reflecting ongoing recovery in the oil sector, supported by improved investment flows and fewer operational disruptions.
Analysts at Cordros Capital Limited estimate that real GDP grew by 4.10% y/y in Q2 from 3.61% in Q1. Based on this trend, they expect the solid growth momentum to persist through the second half of the year.
“With sustained improvements in key indicators, particularly inflation and the exchange rate, we anticipate that the MPC will begin reassessing its current policy stance,” Cordros Capital said.
Inflation is expected to moderate further in H2-25, reinforcing the case for a pivot toward monetary easing. This view is bolstered by recent declines in short-term debt market rates: the discount rate on the 364-day T-bill dropped by 254 bps to 16.30%, while the 363-day OMO stop rate fell by 265 bps to 21.99% at the July 9 auctions.
“We interpret these shifts as early signals of a gradual move toward policy accommodation aimed at lowering borrowing costs for both the government and corporates”. Analysts expect the committee to tread cautiously, balancing growth support with its mandate to preserve price and exchange rate stability.
“While some policy easing is likely, the Committee is expected to ensure that interest rate levels remain sufficiently attractive to sustain capital inflows and anchor inflation expectations amid tight global liquidity and persistent uncertainty.
“As such, we expect the monetary policy committee to reduce the monetary policy rate by 50 bps to 27.00% at its meeting,” the investment firm said in the report.
In a bid to steadily ease monetary conditions, the MPC may also lower the Cash Reserve Ratio (CRR) for Deposit Money Banks and Merchant Banks by 500 bps to 45.0% and 200 bps to 14.0%, respectively, while retaining other parameters. #MPC: Analysts Differ on Monetary Easing, Rule Out Interest Rate Hike CBN Intervenes in Currency Market to Redirects NFEM Rate
