The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) opted to maintain the Monetary Policy Rate (MPR), effectively the benchmark interest rate, at 27.50% for the second consecutive time in 2025. This decision, announced by CBN Governor Olayemi Cardoso, followed the MPC’s 300th meeting and marked a pause after six successive rate hikes throughout 2024. The CBN cited the need to observe and understand short-term economic trends as justification for maintaining the current rate. This decision impacts other monetary policy instruments: the asymmetric corridor around the MPR remains at +500/-100 basis points, the Cash Reserve Ratio (CRR) for Deposit Money Banks stays at 50.00%, and the CRR for Merchant Banks continues at 16.00%. The Liquidity Ratio also remains at 30.00%. The committee’s decision reflects a cautious approach to monetary policy, emphasizing the need to balance inflation control with supporting economic growth.
The MPC’s decision to hold the MPR was influenced by several positive macroeconomic indicators, primarily the easing of inflationary pressures. Data from the National Bureau of Statistics (NBS) indicated a decline in headline inflation to 23.71% in April 2025 from 24.23% in March 2025. Month-on-month inflation also showed significant improvement, dropping from 3.9% to 1.86%. Similarly, food inflation and core inflation decreased to 21.26% and 23.39% respectively in April. While acknowledging these improvements, the CBN maintains a cautious outlook, recognizing the persistent influence of factors like high electricity costs, sustained demand for foreign exchange, and underlying structural challenges within the economy that continue to contribute to inflationary pressures. The committee expressed optimism that government initiatives aimed at boosting domestic production and reducing reliance on foreign exchange would further moderate inflation.
Despite the positive trajectory of inflation and GDP growth, the CBN highlighted concerns about potential headwinds, particularly declining crude oil prices, which pose a threat to government revenue and budget execution. The committee also underscored the importance of sustained reforms in the foreign exchange market to bolster investor confidence. The growth in Nigeria’s external reserves, reaching $38.90 billion by mid-May 2025, equivalent to 7.6 months of import cover, was a welcome development. The CBN emphasized the necessity of continued efforts by fiscal authorities to increase foreign exchange earnings, particularly from the oil and gas sector and non-oil exports. Furthermore, the gradual convergence of the official and parallel forex market rates was seen as a positive sign.
The decision to hold the MPR at 27.50% has sparked debate within the business community. The Organised Private Sector of Nigeria (OPSN), led by its Chairman, Dele Oye, expressed strong reservations about the high interest rate, arguing that it impedes business growth and profitability. Oye contends that businesses struggle to operate profitably under such high borrowing costs, leading to reduced investment, slowed expansion, and stifled innovation. He advocates for a lower MPR to stimulate economic activity and facilitate business expansion. This perspective highlights the tension between controlling inflation and fostering economic growth, a critical challenge faced by policymakers.
The OPSN’s concerns are echoed by other business groups. Oye, also President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA), warned of the negative impact of high interest rates on businesses, leading to increased operating costs, postponed investments, and reduced consumer spending due to lower disposable income. The ripple effects, he argues, are particularly felt in the retail and service sectors. This perspective emphasizes the need for a balanced approach to monetary policy that considers the impact on businesses and overall economic activity. It illustrates the difficult choices faced by the CBN in its pursuit of price stability while also supporting economic growth.
While the Association of Small Business Owners of Nigeria (ASBON) commended the CBN for holding the MPR steady, recognizing the burden of previous increases on the economy, its National President, Dr. Femi Egbesola, joined the chorus calling for a reduction in the near future. He emphasized the prohibitive nature of the current rate for small businesses seeking access to credit for growth and job creation. Similarly, Segun Kuti-George, National Vice President of the Nigerian Association of Small Scale Industrialists (NASSI), viewed the hold as a strategic move to monitor inflation trends before potentially adjusting the MPR downwards. This overall sentiment within the business community reflects a desire for a more accommodative monetary policy that supports growth, even as the CBN grapples with the challenge of managing inflation. The ongoing dialogue between the CBN and the business community underscores the complex considerations involved in setting monetary policy and the need to balance competing economic priorities.
