MPC at a Crossroads: Will Slowing Inflation Trigger a Rate Cut?
Subhead:
With inflation moderating and the naira stabilizing, Nigeria’s Monetary Policy Committee faces mounting pressure to ease interest rates. But economic risks still loom large.
Introduction:
As Nigeria’s Monetary Policy Committee (MPC) prepares for its 301st meeting on July 21–22, 2025, it stands at a crucial decision point. After over a year of aggressive tightening, recent economic signals suggest a shift might be on the horizon. Inflation is slowing. The naira is gaining strength. Investor confidence is cautiously returning.
But the big question is: Will the MPC finally pivot to monetary easing?
Inflation Continues to Cool
The National Bureau of Statistics (NBS) reported that headline inflation fell for the second month in a row—down to 22.22% in June from 22.97% in May. This marks a notable improvement from 34.19% in June 2024, especially after the NBS rebased the Consumer Price Index (CPI) earlier in the year.
Economists credit the inflation moderation to:
• PMS price cuts
• A relatively stable naira
• Declining money supply
• And the base-year effect (as June 2024 saw exceptionally high inflation).
Hopes for a Rate Cut Rise
These developments have raised market hopes for a modest rate cut—possibly by 25 basis points—after the MPC held rates at 27.50% in its May meeting. The committee had previously hiked rates six times in 2024 to tame inflation.
But analysts remain split.
• Optimists argue the CBN has room to ease, thanks to disinflation and a firmer exchange rate.
• Cautious voices warn against a premature pivot that could reignite inflation or destabilize forex markets.
What Analysts Are Saying
Afrinvest Securities: Expect no change in MPR. Risks like food inflation, insecurity, flooding, and pending GDP data are still top of mind.
Financial Derivatives Company (FDC): Recommends a 25bps rate cut to 25%. CEO Bismarck Rewane says lower rates would ease borrowing costs and support small businesses, especially with the IMF projecting further inflation moderation into 2026.
Cordros Securities: Supports a gradual easing approach. They believe inflation will keep dropping, and that GDP growth will remain solid despite ongoing reforms.
CBN’s Balancing Act
CBN Governor Olayemi Cardoso emphasizes that the apex bank will continue to consolidate gains from past policies.
“Inflation has been too high for too long… Our goal is to bring it down to single digits in the medium to long term.”
Cardoso added that the CBN is working to:
• Increase transparency in FX operations
• Encourage foreign investment
• Improve liquidity through reform tools like the Electronic FX System and FX Code
Economic Signals in Focus
Naira Appreciation: The local currency has strengthened by 7.27% YTD, now trading around ₦1,530 to the dollar at the parallel market—down from ₦1,650 in January.
Crude Production: Steady at 1.74 million barrels/day, oil output is boosting FX reserves and supporting fiscal stability.
Investor Sentiment: Renewed optimism is flowing into the markets, with businesses cheering the previous rate holds that helped anchor the naira.
Why the MPC May Still Hold Rates
Despite improving indicators, several red flags remain:
• Food inflation is still rising (FDC pegs it at 21.56%)
• Core inflation is only marginally easing
• Global uncertainties (trade wars, geopolitical tensions)
• Risk of capital flight if Nigeria cuts rates too quickly
Some experts warn that with lending rates exceeding 35% and the Cash Reserve Ratio at 50%, the economy is already feeling the brunt of aggressive policy tools.
Policy Outlook: Gradual, Not Aggressive
Even if the MPC begins to pivot, analysts agree: Don’t expect a major rate cut yet.
The likely path forward?
• A symbolic reduction (if any), possibly by 25bps
• Continued data-dependent decisions
• A focus on managing inflation expectations, not just reacting to headline figures
Bottom Line
The MPC’s July meeting could signal a turning point in Nigeria’s monetary policy strategy.
If the committee holds rates, it reflects caution and commitment to price stability.
If it eases—even slightly—it marks the beginning of a new, accommodative cycle after a year of harsh tightening.
With the economy on the edge of recovery, the committee’s decision will send a strong signal to businesses, investors, and the public about where Nigeria’s macroeconomic management is heading.
Subhead:
With inflation moderating and the naira stabilizing, Nigeria’s Monetary Policy Committee faces mounting pressure to ease interest rates. But economic risks still loom large.
Introduction:
As Nigeria’s Monetary Policy Committee (MPC) prepares for its 301st meeting on July 21–22, 2025, it stands at a crucial decision point. After over a year of aggressive tightening, recent economic signals suggest a shift might be on the horizon. Inflation is slowing. The naira is gaining strength. Investor confidence is cautiously returning.
But the big question is: Will the MPC finally pivot to monetary easing?
Inflation Continues to Cool
The National Bureau of Statistics (NBS) reported that headline inflation fell for the second month in a row—down to 22.22% in June from 22.97% in May. This marks a notable improvement from 34.19% in June 2024, especially after the NBS rebased the Consumer Price Index (CPI) earlier in the year.
Economists credit the inflation moderation to:
• PMS price cuts
• A relatively stable naira
• Declining money supply
• And the base-year effect (as June 2024 saw exceptionally high inflation).
Hopes for a Rate Cut Rise
These developments have raised market hopes for a modest rate cut—possibly by 25 basis points—after the MPC held rates at 27.50% in its May meeting. The committee had previously hiked rates six times in 2024 to tame inflation.
But analysts remain split.
• Optimists argue the CBN has room to ease, thanks to disinflation and a firmer exchange rate.
• Cautious voices warn against a premature pivot that could reignite inflation or destabilize forex markets.
What Analysts Are Saying
Afrinvest Securities: Expect no change in MPR. Risks like food inflation, insecurity, flooding, and pending GDP data are still top of mind.
Financial Derivatives Company (FDC): Recommends a 25bps rate cut to 25%. CEO Bismarck Rewane says lower rates would ease borrowing costs and support small businesses, especially with the IMF projecting further inflation moderation into 2026.
Cordros Securities: Supports a gradual easing approach. They believe inflation will keep dropping, and that GDP growth will remain solid despite ongoing reforms.
CBN’s Balancing Act
CBN Governor Olayemi Cardoso emphasizes that the apex bank will continue to consolidate gains from past policies.
“Inflation has been too high for too long… Our goal is to bring it down to single digits in the medium to long term.”
Cardoso added that the CBN is working to:
• Increase transparency in FX operations
• Encourage foreign investment
• Improve liquidity through reform tools like the Electronic FX System and FX Code
Economic Signals in Focus
Naira Appreciation: The local currency has strengthened by 7.27% YTD, now trading around ₦1,530 to the dollar at the parallel market—down from ₦1,650 in January.
Crude Production: Steady at 1.74 million barrels/day, oil output is boosting FX reserves and supporting fiscal stability.
Investor Sentiment: Renewed optimism is flowing into the markets, with businesses cheering the previous rate holds that helped anchor the naira.
Why the MPC May Still Hold Rates
Despite improving indicators, several red flags remain:
• Food inflation is still rising (FDC pegs it at 21.56%)
• Core inflation is only marginally easing
• Global uncertainties (trade wars, geopolitical tensions)
• Risk of capital flight if Nigeria cuts rates too quickly
Some experts warn that with lending rates exceeding 35% and the Cash Reserve Ratio at 50%, the economy is already feeling the brunt of aggressive policy tools.
Policy Outlook: Gradual, Not Aggressive
Even if the MPC begins to pivot, analysts agree: Don’t expect a major rate cut yet.
The likely path forward?
• A symbolic reduction (if any), possibly by 25bps
• Continued data-dependent decisions
• A focus on managing inflation expectations, not just reacting to headline figures
Bottom Line
The MPC’s July meeting could signal a turning point in Nigeria’s monetary policy strategy.
If the committee holds rates, it reflects caution and commitment to price stability.
If it eases—even slightly—it marks the beginning of a new, accommodative cycle after a year of harsh tightening.
With the economy on the edge of recovery, the committee’s decision will send a strong signal to businesses, investors, and the public about where Nigeria’s macroeconomic management is heading.