The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) kept the Monetary Policy Rate (MPR) unchanged at 27.5% for the third consecutive period.
The MPC’s decision to maintain its policy stance was underpinned by the need to consolidate the disinflationary process and sufficiently contain price pressures.
Additionally, the Committee retained all other parameters – Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) and Merchant Banks at 50.0% and 16.0%, respectively; the asymmetric corridor around the MPR at +500bps/-100bps and the liquidity ratio at 30.0%.
On Domestic Growth: The Committee acknowledged the slow but positive growth recorded in Q1-25 (3.13% y/y vs Q4-24: 3.76% y/y | Q1-24: 2.27% y/y), reflecting a moderation in growth across the oil and non-oil sectors from the previous quarter.
On Inflation: The MPC also acknowledged the sustained moderation in headline inflation (-76bps to 22.22% y/y) in June, driven by a decline in energy prices and stability in the naira. However, it noted the increase in the month-on-month headline inflation (+1.68% vs May: 1.53% m/m), indicating persistent underlying inflationary pressures.
On the External Sector: The MPC noted the sustained stability of the naira, underpinned by increased capital flows, improved oil earnings following the increase in crude oil production, higher non-oil exports and a significant decline in overall imports. According to the CBN, the FX reserves rose to USD40.11 billion as of July 18th, representing c. 9.5 months of goods import cover.
On Global Developments: The Committee highlighted the persistent global uncertainties, primarily associated with heightened trade tensions and geopolitical rifts. The MPC stated that the increased global pressures may likely disrupt the global supply chain and could potentially push up prices of imported items in the domestic economy. The Committee also pointed out the slowdown in the disinflationary trend in advanced economies, which has prompted central banks to adopt a cautious stance due to the unabating upside risks to inflation.
Cordros’ View
The committee’s decision to maintain the policy rate came in contrast to our expectation of a shift toward monetary easing. We had earlier expected the MPC to lower the MPR by 50bps to 27.00% given the sustained moderation in headline inflation, reduced global pressures, and relative naira stability.
However, the Committee’s stance was largely influenced by persistent inflationary pressures, particularly the uptick in food and core inflation in June, despite continued moderation in headline inflation, as well as existing global uncertainties. These underlying pressures prompted the MPC to hold the policy rate steady as part of efforts to contain inflation and reinforce the ongoing disinflationary trend.
Looking ahead, the MPC anticipates further moderation in inflation, supported by its current monetary policy stance, relative exchange rate stability, easing petrol prices, and the expected impact of the main harvest season in Q4-25 on food inflation. Nonetheless, we believe the pace and consistency of disinflation will remain the key determinant of future policy decisions. Should headline inflation and key CPI sub-components remain volatile without a clear and sustained downward trend, the MPC is likely to keep the MPR unchanged in the near term.
Additionally, while global market volatility has eased, persistent trade tensions continue to weigh on the global economic outlook, contributing to a more cautious approach to monetary policy easing across advanced and emerging economies. This may further support the MPC’s decision to maintain elevated interest rates to sustain carry trade opportunities.
Market Impact
Fixed Income: The MPC’s decision to keep the policy rate unchanged at 27.5% reinforces expectations of an eventual shift toward monetary easing, particularly amid sustained disinflation. This policy continuity, alongside the Federal Government’s restrained issuance strategy, continues to exert downward pressure on yields across the curve.
Notably, the decline in stop rates across all tenors at the most recent NTB auction further supports this outlook, indicating a broader downward trajectory in fixed income yields through 2025. As a result, we expect investors to remain active in locking in elevated yields, especially in the short term, in anticipation of a medium- to long-term decline in interest rates. In our view, monetary policy clarity and improving macroeconomic fundamentals will remain the key drivers of yield movements in the months ahead.
Equities: Investor sentiment in the equities market has strengthened notably in recent weeks, buoyed by moderating inflation, improving exchange rate stability, and a sustained hold in the policy rate. Since the last hold decision in May, when the NGX All-Share Index was up just 6.6% year-to-date (as of 20 May), market sentiment has improved significantly, with the ASI now up 28.6% YTD (22 July).
This sharp rally has been underpinned by stronger risk appetite, supported by expectations of yield moderation in the fixed income market and the commencement of the H1-25 earnings season. Overall, while the latest rate hold may have been largely priced in, it reinforces expectations of a stable monetary policy environment—potentially encouraging further equity inflows as investors rebalance portfolios in favour of risk assets amid moderating fixed income returns.
Cordros
