Market News

As the central bank’s Monetary Policy Committee (MPC) meets next week for the third time this year, economists as well as financial analysts hold conflicting views as to the decisions of the monetary authorities whether to hold or cut rates.

While some expressed confidence that in view of the current moderation in the inflation rate and exchange rate stability, a marginal reduction Monetary Policy Rate (MPR) could be the most likely outcome, others see the benchmark interest rate retained.

The 301st meeting, scheduled for 21-22 July, 2025, presents a rare opportunity for the monetary authorities to assess the economy and make decisions based on available data and forecasts on borrowing costs after raising the rates all through last year and holding it steady twice this year at 27.5 percent.

During the May meeting, the MPC had warned that inflationary pressures were still significant, arguing that maintaining elevated interest rates was necessary to mitigate those risks. The Committee also raised concerns that any premature rate cut might destabilise the naira, especially as the current FX rate gains have been supported by attractive yields on Open Market Operation (OMO) bills.

No consensus on rate cut

Most analysts surveyed have differing views concerning whether or not the monetary authorities will cut or hold rates at its meeting next week.

Analysts at Afrinvest Securities Limited anticipate that the MPC will maintain its policy stance despite signs of disinflation and foreign exchange stability.

They attributed their projection to continued external risks, food supply shocks caused by recent insecurity and flooding, and uncertainties arising from the delayed release of Nigeria’s rebased GDP figures for Q1 2025.

Afrinvest West Africa said inflation could drop as low as 22.2 per cent in June 2025.

“Our view for the inflation projection is hinged on two major drivers. Firstly, the effect of the CBN’s strategic policy reforms has seen the naira strengthen in the month of June, up 3.6 per cent to close at N1,529.71. Secondly, the high base year effect from last year’s 34.2 per cent inflation reading is a contributing factor,” Afrinvest stated.

But Bismarck Rewane, managing director, Financial Derivatives Company (FDC) Limited, sees a likely 25 basis points slash in interest rate to 25 per cent.

In an emailed note to stakeholders, he said the easing in the interest rate is reinforced by the latest forecast from the International Monetary Fund (IMF), which anticipates inflation will decline in the fourth quarter and further ease to18 per cent in 2026.

He explained the wider implication of a fall in MPR including reduction of borrowing cost of small businesses and reinvigoration of the productive sector.

Rewane’s FDC said inflation is expected to ease to 22.65 per cent in June, from 22.97 per cent.

FDC attributed the reduction to a combination of factors, including a N100 reduction in PMS price, relative stability in the naira exchange rate, and a decline in money supply growth.

The consultancy firm however expects food inflation to rise by 0.42 per cent to 21.56 per cent from 21.14 per cent. Core inflation is projected to decline by 1.34 per cent to 20.94 per cent from 22.28 per cent.

“The inflation numbers could have been worse if not for the relative stability of the exchange rate,” FDC noted.

Analysts at Cordros Securities, said that with the commencement of H2-25, there is need to continue to adopt a cautiously optimistic stance.

“The Gross Domestic Product (GDP) growth is expected to remain robust as economic strains induced by the reforms continue to ease. With domestic inflation expected to continue easing, the Monetary Policy Committee (MPC) may begin to consider a gradual pivot toward monetary easing”.

The analysts however, said the relatively tight global financial environment and uncertainties stemming from global trade tension and geopolitical instability will likely constrain the depth of r

Echoes from 300th meeting

CBN Governor Olayemi Cardoso said the apex bank is now more than ever, consolidating market gains and ensuring sustained improvement is crucial.

“We will enhance collaboration with the fiscal sector by increasing the depth and regularity of our interactions to drive economic growth. With stabilising forex rates, strengthened price controls, and rising investor confidence, the economy shows strong signs of resilience and recovery,” he said.

The naira has strengthened to its highest levels in four months at N1,518.88/$, driven by improved liquidity, subdued forex demand, and sustained CBN intervention.

Businesses, especially real sector operators applauded the MPC decision to hold rates, so as to sustain naira rally and cut rising cost of borrowing.

These decisions were based on the fact that the Committee anticipates robust GDP growth in the medium term, driven by strong contributions from the non-oil sector. Additionally, the MPC noted the sustained rise in domestic crude oil production (1.74mb/d) and expects an improved contribution from the oil sector, further strengthening overall GDP growth.

The MPC expects the sustained policy initiatives to improve Foreign Direct and Portfolio investments as investors’ confidence increases. The MPC also highlighted that the increased domestic crude oil production is expected to improve the current account balance and support FX reserve accretion.

On the global scale, the Committee noted that while the Russia-Ukraine war and Middle Eastern conflicts remain downside risks to global GDP, potential resolutions could emerge following policy actions by the new US administration.

Additional risks include a possible global trade war driven by US tariff hikes, which may heighten inflationary pressures and weigh on global growth. However, the MPC highlighted that the IMF has maintained its global GDP growth forecast at 3.3 per cent for both 2025 and 2026.

Views from stakeholders: what lies ahead

Looking ahead, analysts at Cordros Securities expect future MPC decisions to be primarily influenced by developments in the FX market and the trajectory of inflation.

“While a potential rate cut could be considered at the May policy meeting, we anticipate a gradual approach aimed at balancing exchange rate stability with the anticipated disinflationary process,” they said in emailed notes to investors.

Analysts said that before the MPC meeting, market participants had already begun repricing yields downward despite the tight liquidity conditions in the financial system.

Rewane said the global and domestic economic landscape is shifting, and Nigeria’s policymakers are navigating treacherous waters. Balancing risks remains delicate – tighten too much, and suffocate growth; ease too soon, and inflation spirals.

Speaking on the MPC decisions, the Research Head, Cowry Asset Management Limited, Charles Abuede, said the MPC is treading cautiously. “The committee should remain focused on maintaining price stability, especially as inflationary pressures persist despite previous rate hikes.

Abuede said a lower inflation print is prompting the MPC to prioritise economic growth over further tightening, particularly as other macroeconomic indicators suggest easing cost pressures. He said the MPC is gradually relaxing the tightening of the monetary policy.

He said, despite the well-known disposition of the central bank, the reality of the moment required that rates be held.

More so, analysts from the Nigeria Economic Summit Group said easing of inflation was also expected to influence monetary policy. They predicted that the CBN’s Monetary MPC may adopt a more accommodative stance in late 2025, potentially lowering interest rates to stimulate economic activity.

This shift would mark a departure from the previous tight monetary policy regime aimed at controlling inflation.