Following two consecutive declines in the inflation rate and relative stability in the foreign exchange market, expectations are rising that the Monetary Policy Committee may consider a rate cut at its next meeting.
Ahead of the MPC’s 301st meeting scheduled for July 21-22 in Abuja, the National Bureau of Statistics reported that headline inflation eased for a second consecutive month, moderating to 22.22% in June from 22.97% in May. This follows a series of declines since the NBS rebased the Consumer Price Index earlier in the year, which saw inflation drop from 34.80% in December 2024 to 24.48% in January 2025.
The moderation in inflation and naira stability have led some analysts to predict that the MPC could adjust the Monetary Policy Rate downward, marking a potential shift away from its prolonged tightening stance. However, others believe the committee may maintain the current rate to consolidate recent gains and ensure sustained price and exchange rate stability.
At its May meeting, the MPC held the benchmark interest rate at 27.5%, citing cautious optimism amid improving macroeconomic indicators, including a narrowing gap between official and parallel exchange rates, declining petrol prices, and a favourable trade balance. The committee emphasised that while inflationary pressures were easing, risks of reinflation remained, warning that premature rate cuts could undermine naira stability.
Despite these concerns, the continued slowdown in inflation has strengthened arguments for a modest rate cut to support economic activity and reduce borrowing costs, particularly for businesses in the real sector.
Afrinvest Securities expects the MPC to maintain its current stance, citing external risks, food supply shocks from insecurity and flooding, and uncertainty surrounding the delayed release of Nigeria’s rebased GDP figures for Q1 2025. The firm projected inflation could drop to 22.2% by June, driven by naira appreciation and a high base year effect.
Conversely, the Financial Derivatives Company has advocated a 25-basis-point cut, arguing that lower rates would ease borrowing costs and stimulate the productive sector. The firm noted that the moderation in inflation was supported by a reduction in petrol prices, relative naira stability, and a slowdown in money supply growth.
Cordros Securities noted that with easing inflation and stable exchange rates, the MPC may gradually consider a pivot toward monetary easing in the second half of the year, though it is likely to proceed cautiously given global financial tightening and geopolitical uncertainties.
Central Bank of Nigeria Governor, Olayemi Cardoso, has maintained that the apex bank will continue to pursue stability in the foreign exchange and financial markets while consolidating recent gains. He reiterated the goal of reducing inflation from double digits to single digits in the medium to long term, stressing that the bank will remain vigilant while collaborating with fiscal authorities to drive economic growth.
The naira has strengthened by 7.27% this year, appreciating from N1,650/$ in January to N1,530/$ in July, supported by sustained CBN interventions and improved investor confidence.
The MPC has highlighted that Nigeria’s medium-term growth prospects remain positive, underpinned by the strong performance of the non-oil sector and rising domestic crude oil production, which reached 1.74 million barrels per day, strengthening the current account balance and supporting forex reserves.
The committee has also noted the positive impact of the naira’s appreciation, improved forex liquidity, and initiatives such as the rollout of the Electronic Foreign Exchange System and the Nigerian FX Market Code, which are designed to enhance transparency and boost investor confidence.
Despite global uncertainties, including geopolitical tensions and trade risks, the MPC expects continued moderation in inflation supported by stable exchange rates and lower petrol prices.
While some analysts argue that Nigeria may have reached the limits of its monetary tightening, with interest rates above 35% for many businesses and the cash reserve ratio at 50%, others caution that the central bank must maintain a careful balance between supporting economic growth and ensuring price stability.
The upcoming MPC meeting is set against a backdrop of easing inflation, a stronger naira, and renewed investor confidence, creating conditions that may favour a modest rate cut to stimulate the economy while safeguarding recent macroeconomic gains.
