Rate Cuts on the Horizon? Cooling Inflation and Stronger Naira Put CBN at a Turning Point
As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria begins its latest meeting, financial analysts are increasingly confident that Nigeria may be entering a new monetary phase — one marked by cautious interest rate cuts.
After months of aggressive tightening to combat inflation, recent economic signals suggest the apex bank may finally have room to ease.
Why Analysts Expect a Rate Cut
Inflation Is Cooling
Nigeria’s headline inflation slowed to 15.10% year-on-year in January, extending a steady disinflation trend observed in recent months.
• December inflation: 15.2%
• Market expectation: 19.5%
• Food and core inflation both moderated
This unexpected downside surprise has strengthened arguments that price pressures are easing faster than anticipated.
Stronger Naira Boosts Confidence
The naira has appreciated by roughly 8% against the dollar year-to-date, signaling improved exchange rate stability.
A firmer currency helps:
• Reduce imported inflation
• Improve investor sentiment
• Ease pressure on foreign reserves
With exchange rate volatility contained, policymakers may feel more confident adjusting rates downward.
What Key Analysts Are Saying
Ayokunle Olubunmi (Agusto & Co.)
The Head of Financial Institutions Ratings at Agusto & Co. expects a modest cut:
• Likely reduction: 50 to 100 basis points
• Any adjustment to the Cash Reserve Ratio (CRR) would be minimal
However, he cautions that the MPC will move carefully to avoid reigniting inflation — especially with rising fiscal spending and political activity ahead of elections.
The balancing act: Support growth without triggering excess liquidity.
Lukman Otunuga (FXTM)
Senior Market Analyst at FXTM believes easing is increasingly inevitable:
“The question is not if, but how much the CBN will slash interest rates.”
He highlights:
• Inflation below expectations
• Lower food prices cushioning overall inflation
• Stronger naira supporting macro stability
The benchmark rate currently stands at 27%, held steady at the last MPC meeting.
Meristem Analysts’ Forecast
Analysts at Meristem expect a clear dovish shift:
• 100 basis point cut to bring the Monetary Policy Rate (MPR) to 26%
• Adjust the asymmetric corridor to +200/-300bps
• Maintain Liquidity Ratio at 30%
• Retain CRR levels:
• 45% (Deposit Money Banks)
• 16% (Merchant Banks)
• 75% (Non-TSA public sector deposits)
They describe the current moment as an “inflection point” in Nigeria’s inflation cycle.
The Big Balancing Act
While inflation is cooling, risks remain:
• Potential increase in government capital spending
• Political activities ahead of elections
• Global uncertainty as other central banks maintain caution
The MPC must balance:
• Supporting economic growth
• Preserving currency stability
• Avoiding a resurgence in inflation
What This Means for Nigerians and Investors
If rates are cut:
✔ Borrowing costs may gradually decline
✔ Business investment could improve
✔ Equity markets may react positively
✔ Consumer confidence could strengthen
However, aggressive easing could:
⚠ Increase liquidity pressures
⚠ Weaken inflation gains
Final Outlook
All signs suggest the Central Bank of Nigeria is nearing the end of its tightening cycle.
Whether the MPC opts for a cautious 50bps trim or a bolder 100bps cut, the decision will mark a critical turning point in Nigeria’s monetary policy path.
The key question now is not whether easing begins — but how carefully the CBN manages the transition.
As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria begins its latest meeting, financial analysts are increasingly confident that Nigeria may be entering a new monetary phase — one marked by cautious interest rate cuts.
After months of aggressive tightening to combat inflation, recent economic signals suggest the apex bank may finally have room to ease.
Why Analysts Expect a Rate Cut
Inflation Is CoolingNigeria’s headline inflation slowed to 15.10% year-on-year in January, extending a steady disinflation trend observed in recent months.
• December inflation: 15.2%
• Market expectation: 19.5%
• Food and core inflation both moderated
This unexpected downside surprise has strengthened arguments that price pressures are easing faster than anticipated.
Stronger Naira Boosts ConfidenceThe naira has appreciated by roughly 8% against the dollar year-to-date, signaling improved exchange rate stability.
A firmer currency helps:
• Reduce imported inflation
• Improve investor sentiment
• Ease pressure on foreign reserves
With exchange rate volatility contained, policymakers may feel more confident adjusting rates downward.
What Key Analysts Are Saying
Ayokunle Olubunmi (Agusto & Co.)
The Head of Financial Institutions Ratings at Agusto & Co. expects a modest cut:
• Likely reduction: 50 to 100 basis points
• Any adjustment to the Cash Reserve Ratio (CRR) would be minimal
However, he cautions that the MPC will move carefully to avoid reigniting inflation — especially with rising fiscal spending and political activity ahead of elections.
The balancing act: Support growth without triggering excess liquidity.
Lukman Otunuga (FXTM)
Senior Market Analyst at FXTM believes easing is increasingly inevitable:
“The question is not if, but how much the CBN will slash interest rates.”
He highlights:
• Inflation below expectations
• Lower food prices cushioning overall inflation
• Stronger naira supporting macro stability
The benchmark rate currently stands at 27%, held steady at the last MPC meeting.
Meristem Analysts’ Forecast
Analysts at Meristem expect a clear dovish shift:
• 100 basis point cut to bring the Monetary Policy Rate (MPR) to 26%
• Adjust the asymmetric corridor to +200/-300bps
• Maintain Liquidity Ratio at 30%
• Retain CRR levels:
• 45% (Deposit Money Banks)
• 16% (Merchant Banks)
• 75% (Non-TSA public sector deposits)
They describe the current moment as an “inflection point” in Nigeria’s inflation cycle.
The Big Balancing ActWhile inflation is cooling, risks remain:
• Potential increase in government capital spending
• Political activities ahead of elections
• Global uncertainty as other central banks maintain caution
The MPC must balance:
• Supporting economic growth
• Preserving currency stability
• Avoiding a resurgence in inflation
What This Means for Nigerians and Investors
If rates are cut:
✔ Borrowing costs may gradually decline
✔ Business investment could improve
✔ Equity markets may react positively
✔ Consumer confidence could strengthen
However, aggressive easing could:
⚠ Increase liquidity pressures
⚠ Weaken inflation gains
Final Outlook
All signs suggest the Central Bank of Nigeria is nearing the end of its tightening cycle.
Whether the MPC opts for a cautious 50bps trim or a bolder 100bps cut, the decision will mark a critical turning point in Nigeria’s monetary policy path.
The key question now is not whether easing begins — but how carefully the CBN manages the transition.
