The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is set to convene its next meeting on September 22nd and 23rd.
Since the last MPC meeting, global monetary easing has gained momentum, largely reflecting rising downside risks to growth and employment activities, while trade tensions have remained relatively subdued.
On the domestic front, inflation has continued to moderate, and the naira has remained relatively stable. Given recent developments, we anticipate that the MPC may revisit its current policy stance. With key macroeconomic indicators suggesting improved stability, the Committee could begin a gradual transition toward monetary easing.
However, any shift is likely to be cautious. We project a 50bps cut in the Monetary Policy Rate (MPR), signalling a measured effort to foster economic growth while maintaining its commitment to price and exchange rate stability.
Global Central Banks Balance Inflation Risks with Growth Concerns
For the first time in 2025, the US Federal Reserve lowered the federal funds rate, after five consecutive sessions of holding rates steady, cutting the policy rate by 25bps to a range of 4.00%–4.25% at its September meeting.
The decision reflects the Fed’s increasing focus on labour market weakness, as rising unemployment risks outweigh lingering inflationary pressures. Specifically, the US unemployment rate climbed to 4.3% y/y in August, its highest level in nearly four years, while non-farm payroll growth slowed sharply to 22,000 from 79,000 in July. Notably, the Committee signalled the likelihood of two further rate cuts before year-end, revising its policy rate projection downwards to 3.60% from 3.90%.
Elsewhere, the Bank of England cut its benchmark rate by 25bps to 4.00% in August, citing subdued growth and a weakening labour market, but held it steady in September amid concerns over upside risks to medium-term inflation.
Meanwhile, the European Central Bank maintained its key policy rates, including the deposit, main refinancing operations, and the marginal lending facilities, at 2.00%, 2.15%, and 2.40%, respectively, at the September policy meeting, marking the second consecutive period after a cumulative 100bps decrease this year. The decision to keep rates steady was driven by the need to balance easing inflation with resilient economic conditions and external uncertainties.
Looking ahead, while policy decisions remain data-dependent, elevated unemployment risks and weakening growth prospects suggest the likelihood of further monetary easing across major economies.
Strengthening Fundamentals Support Economic Growth
We project that Nigeria’s economy expanded by 3.90% y/y in Q2-25 (Q1-25: +3.13% y/y; Q2-24: +3.48% y/y), supported by solid performances across both the oil and non-oil sectors. The oil sector is estimated to have recorded 11.90% y/y growth, reflecting higher crude output (Q2-25: 1.68mbpd vs. Q2-24: 1.47mbpd), underpinned by increased investment, enhanced pipeline surveillance, and fewer terminal shut-ins.
Meanwhile, the non-oil sector likely grew by 3.62% y/y (Q1-25: +3.19% y/y), driven largely by a rebound in agriculture (+2.63% y/y vs. Q1-25: +0.07% y/y). This was primarily supported by stronger livestock production, which benefitted from lower cost pressures and improved consumer demand after contracting in the previous quarter.
The manufacturing sector also strengthened, likely expanding by 1.76% y/y (Q1-25: +1.69% y/y), reflecting improved business confidence following relative naira stability. In addition, the services sector (+4.10% y/y vs. Q1-25: +4.33% y/y) sustained recent resilience, supported by robust performances in ICT and trade, due to rising digital adoption, exchange rate stability and resilient consumer demand. However, slower growth in the finance and insurance subsector, driven by weaker risk-asset creation amid the CBN’s tight monetary policy stance, likely slowed the overall pace of expansion.
Looking ahead, we expect economic activity to remain on an expansionary trajectory, as moderating inflation, continued exchange rate stability and reduced regulatory constraints bolster business sentiment and investment. Consequently, we project Nigeria’s economy to grow by an average of 3.50% y/y in 2025FY (2024FY: +3.30% y/y).
Headline Inflation Slows to 20.12% y/y in August
Headline inflation eased for the fifth consecutive month, declining sharply by 176bps to 20.12% y/y in August (July: 21.88% y/y). The slowdown was driven by softer price pressures in both food (21.87% y/y vs. July: 22.74% y/y) and core sub-items (20.33% y/y vs. 21.33% y/y).
Looking ahead, we expect the disinflationary trend to strengthen, supported by favourable base effects, the onset of the main harvest season (typically spanning September to December), and stable energy prices, which together could drive headline inflation below the 20.0% threshold.
Robust FX Inflows and Reserves Anchor Naira Stability
While monthly foreign exchange inflows have remained volatile, the trend remains above the 2024FY average, indicating resilient market liquidity supported by improved confidence, which has underpinned naira stability. In August, total inflows into the NAFEM market declined by 12.1% m/m to USD3.37 billion (July: USD3.83 billion | 2024 average of USD2.51 billion). The decline primarily reflected weaker foreign inflows (-28.1% to USD1.26 billion), partly offset by a marginal uptick in local inflows (+1.5% to USD2.11 billion).
Furthermore, external reserves strengthened in recent weeks, with a YTD accretion of 2.5% to USD41.89 billion (as of 16 September), supported by gradual improvements in oil receipts, reduced CBN FX interventions, and steady diaspora remittances. Overall, the naira exchange rate with the US Dollar averaged NGN1,532.87/USD in August, appreciating to NGN1,484.00/USD on 16 September before closing at NGN1,494.00/USD (18 September). In the short term, we expect the naira to remain relatively stable, supported by robust FX reserves, reduced currency speculation activities and resilient capital inflows, which will be further aided by the ongoing global monetary easing.
MPC May Lower the MPR Gradually by 50bps
We expect the MPC to begin reassessing its current policy stance, supported by sustained improvements in key indicators (inflation and the exchange rate) and a more positive outlook. The Committee is also likely to consider recent shifts globally to monetary easing, following the US Fed’s rate cut and the prospect of further policy accommodation in near future periods.
This should be positive for capital flows into emerging and frontier markets, including Nigeria, adding an additional layer of support to engender continued exchange rate stability.
That said, we expect the Committee to remain cautious, balancing growth-supportive measures with its core mandate of maintaining price stability. Specifically, we believe any easing will be carefully calibrated in an effort to ensure that interest rates remain competitive enough to continue to attract capital inflows and anchor inflation expectations. Accordingly, we project a 50bps cut in the Monetary Policy Rate (MPR) to 27.00% at next week’s meeting, while maintaining other parameters.
Cordros
