Market News

Nigeria’s inflation is projected to further drop to 21.79 percent in July as prices continue to moderate in Africa’s most populous nation after hitting its highest levels last year, according to Bismarck Rewane, the managing director of Financial Derivative Company (FDC).

That would be the fourth consecutive deceleration in 2025 and the lowest in almost two years. Rewane attributed the likely decline to the appreciation of the naira, lower energy costs, and the harvest season.

The disinflationary trend could pave the way for a likely rate cut of at least 25 basis points to 27.25 percent when authorities meet by September, Rewane said in a report presented at the Lagos Business School breakfast session recently.

But with increased money supply from the Federal Account Allocation Committee that reached its highest in June at N1.82 trillion, the renowned economist warns of a likely renewed inflationary concern as a result of high liquidity.

Inflation in Africa’s top crude producer is the highest among its Sub-Saharan peers. But it is projected to average 22 percent in 2025 and 16 percent in 2026, largely due to FX stability, reduction in money supply growth, and reduced importation.

A slowdown in consumer prices meant that the central bank will begin its easing cycle after hiking the key benchmark interest rate all through 2024 and left it unchanged in its three different meetings this year.

For corporates, lowering interest rates would slash borrowing costs and improve cash flow. It would also enhance business activity and allow for cheaper access to credit for Small and Medium Enterprises, while banks see improved demand for credit and “slightly narrower lending spreads.”

“The 25bps cut is relatively small compared to the current high MPR of 27.5%, so the immediate tangible impact may be modest,” Rewane said.

According to Rewane, Nigeria’s GDP will quicken to 3.36 percent in the second quarter and 3.48 percent by the end of the third quarter, suggesting that the economy will continue to expand, having begun the year at 3.13 percent modest annual growth.

While key economic indicators remain largely positive, the people’s pain and hardship persist, Rewane said.“The economy is passing through the worst of the reform-adjustment phase. Real GDP growth will quicken, driven by lower interest rates and net exports.”

He also projects an increase in oil production to 1.55 million barrels per day in August, up from 1.53 mpd in July, while the Brent oil price is expected to slow to $70 per barrel, up from $73 per barrel last month.

Naira to remain stable

The Nigerian naira is projected to remain stable for the remainder of the year, trading between N1500 and N1600 per dollar. Rewane said the naira misalignment from its fair value has reduced, though it is still undervalued by 25.15 percent.

For Rewane, the naira’s purchasing power parity value stood at N1,147.79/$; official rate at N1533.5/$; parallel rate at N1558/$ with a gap narrowed by N24.5.

While the naira is expected to extend its rally throughout the year, gross external reserves will potentially climb to $40 billion in August from $39.27 billion last month.