Onome Amuge
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has, as anticipated, maintained its Monetary Policy Rate (MPR) at 27.5 per cent. This decision, unanimously reached by the committee, underscores a cautious approach aimed at anchoring inflation expectations and easing pressure on the naira amidst heightened global uncertainty.
All other key monetary parameters, including the Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) and Merchant Banks (at 50.0 per cent and 16.0 per cent, respectively), the asymmetric corridor around the MPR (+500bps/-100bps), and the liquidity ratio (30.0 per cent), were also retained.
Analyst projections and economic fundamentals
Following the MPC’s decision, analysts at Cordros Securities, a leading financial services group, project potential for improved market performance in the second quarter of 2025. This outlook is underpinned by expectations of yield moderation, which could encourage a rotation into equities.
On the domestic front, the MPC acknowledged the strong economic growth recorded in Q4 2024, which reached 3.84 per cent year-on-year, up from 3.46 per cent in Q3 2024. This growth was largely driven by strong performances in the services, manufacturing, and agricultural sectors, despite a moderation in the oil sector’s contribution.
Regarding inflation, the committee noted a sustained moderation in food inflation, which eased by 53 basis points to 21.26 per cent year-on-year. However, concerns remain over persistently high core inflation, standing at 23.39 per cent in April, attributed to elevated electricity tariffs and recent naira depreciation. Nonetheless, the MPC expressed optimism that the relative stability in the exchange rate and moderation in petrol prices could help ease overall consumer price pressures in the near term.
The external sector saw a recent build-up in external reserves, which rose by 2.9 per cent to $38.90 billion from $37.82 billion as of March 31, providing over seven months of import cover for goods and services.
Conversely, the balance of payments surplus narrowed to $1.10 billion in Q4 2024, down from $4.21 billion in Q3 2024, primarily due to a moderation in the current account surplus.
The committee also highlighted the CBN’s intensified efforts to curb naira volatility through ongoing market reforms and strategic foreign exchange interventions, particularly in the face of persistent global headwinds.
Global context and policy stance
Globally, the MPC underscored mounting pressures, largely driven by the United States’ unfavourable trade policies. Heightened uncertainty, coupled with expectations of increased oil output from OPEC+, has contributed to a moderation in crude oil prices, raising concerns over potential adverse effects on Nigeria’s fiscal revenues and widening the fiscal deficit. Despite these shocks, the committee expects the global economy to maintain positive growth, aligning with the IMF’s global growth projection of 2.8 per cent year-on-year in 2025 and 3.0 per cent year-on-year in 2026.
Cordros analysts noted that the tone of the latest MPC meeting reflected a cautious approach, consistent with their expectations amidst rising global economic uncertainty and high inflation risk fuelled by recent naira volatility.
“The Committee emphasized the importance of monitoring both domestic and international developments, a perspective that underpins its decision to maintain the policy rate at its current level,” they stated.
While no explicit guidance was provided on the direction of future policy moves, the analysts believe the MPC will remain data-dependent, closely tracking trends across inflation, exchange rate movements, and broader macroeconomic conditions.
“In our view, if upcoming inflation data continues to show irregular swings, the Committee may prefer to retain the current policy stance until clearer signals emerge. Moreover, global headwinds—particularly the lingering impact of trade restrictions and tariffs—pose additional risks to short- to medium-term stability, which further justifies a cautious policy stance in the interim,” the analysts added.
Market impact and outlook
Analysts at Cordros noted that market participants had largely anticipated the MPC’s decision to hold the policy rate and had begun repricing yields downward ahead of the meeting.
“As such, we do not expect a significant post-MPC decline in yields. Although recent trade uncertainties and weakening oil prices prompted some temporary sell-offs by foreign portfolio investors (FPIs), we believe the direction of domestic monetary policy will remain the dominant driver of yield movements in the short to medium term,” they stated.
Cordros maintains its year-end yield forecast of 18.5 per cent for Treasury bills and 17.0 per cent for FGN bonds, supported by expectations of further easing in inflation and a stable policy environment.
The recent decline in inflation (52 basis points to 23.71 per cent year-on-year) and signs of currency stability may bolster investor sentiment, particularly among foreign portfolio investors, whose participation stood at 62.7 per cent as of March 2025.
