The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) recently held its 299th meeting to review economic and financial developments as well as assess the risks and challenges to the outlook for 2025 and beyond. DAVID AGBA reports.
The MPC in that meeting acknowledged the various policies by the Central Bank of Nigeria, that are aimed at anchoring inflation expectations, easing exchange rate pressures, deepening financial inclusion, and improving the transmission mechanism of monetary policy for a better strategic outlook for the country’s developmental expectations.
The lending rate
The central bank unanimously maintained its benchmark lending rate at 27.50% on February 20, 2025, following a 25bps hike in November. This decision comes after six consecutive rate hikes last year, totaling 875 basis points.
CBN Governor Olayemi Cardoso, noted the MPC’s satisfaction with recent macroeconomic trends, particularly the naira’s stability since December, but emphasized the need for continued price monitoring following changes in the CPI methodology. Nigeria’s headline inflation dropped to 24.48% in January, sharply lower than last month’s 34.80% after a rebasing exercise to reflect changes in consumption patterns. Since early 2024, the CBN has pursued an aggressive tightening cycle to rein in inflation and stabilise the naira.
Analyst reaction
Reacting to this development, Managing Director of Financial Derivatives Company (FDC) Limited, Bismark Rewane, said the CBN’s monetary organ took the wisest decision in the face of global and domestic economic unfolding by holding the benchmark rate last week.
According to him: “Balancing risks has become delicate, the global and domestic economic landscape is shifting, and Nigeria’s policymakers are navigating treacherous waters. Balancing risks remains delicate – tighten too much, and suffocate growth; ease too soon, and inflation spirals.”
With this, the MPC finally hit the pause button on interest rate hikes after 12 months of an aggressive tightening campaign. The restrictive stance saw the policy rate peak at 27.5 per cent per annum (p.a) pushing maximum lending rates above 30 per cent p.a.
“Markets perceive this move as the beginning of a more accommodating stance as the yield curve inverted, especially at the short end following the rate decision”, he said.
Rewane however wondered, if this shift will unlock productivity and growth, or will it rekindle inflationary pressures and distort market dynamics?
“History has shown that policy transitions are never smooth, and the US, the UK, and Ghana are eloquent examples—inflation trajectory reversed upward after rate cuts”, said Rewane.
The cautiousness is coming after the National Bureau for Statistics (NBS) rebased the economy, thus bringing the inflation about 10 per cent lower.
Change in price reference year
According to the FDC Prism publication, the data overhaul involves changing the price reference year from 2009 to 2024, and reconstituting and re-weighting the CPI basket.
“Nigeria’s inflation is no longer 35 per cent ! It is now 24.5 per cent ; all thanks to the data revamp. But is this merely an exercise in statistical recalibration, or does it mark a fundamental shift in Nigeria’s economic trajectory?”, Rewane wonders.
Gross Domestic Product (GDP) rebasing in 2014 made Nigeria Africa’s largest economy overnight. Yet, such adjustments have real consequences.
“A lower inflation figure changes interest rate expectations, fiscal projections, and investor sentiment. How will markets react? Will bond yields decline? Will policymakers shift their approach?”
LCCI’s take
On their part, the Lagos Chamber of Commerce and Industry (LCCI) noted that keeping the monetary policy rate unchanged at 27.50 per cent by the Central Bank of Nigeria provides policy stability that enhances investors confidence and aids economic planning in the short term.
The Director-General of LCCI, Chinyere Almona, who made this remark while reacting to the CBN retaining MPR at 27.50 per cent, said this decision also aligns with a gradual approach to managing inflation, helping to contain price increases without introducing abrupt shocks to borrowing costs, especially in an environment where access to credit is already limited.
She said there are notable challenges associated with this decision. High interest rates sustain elevated borrowing costs, making it difficult for small and medium-sized enterprises (SMEs) to access affordable credit, which can hinder economic expansion and job creation.
Moreover, while the rebased inflation rate appears statistically lower, it does not translate to a tangible reduction in the cost of living, as many Nigerians still struggle with high prices for essential goods and services.
As inflation rate falls behind the monetary policy rate, the authority has priced down spot rates on Nigerian treasury bills across standard maturities with real return becoming positive.
The discount rate on 182-day Treasury bills fell by 50 basis points to 18 per cent, while the rate on 364-day paper fell by 189 bps to 18.43 per cent. At the Treasury bills auction conducted on February 5, 2025, the Central Bank of Nigeria (CBN) offered N570.00 billion across three maturities, slightly exceeding the N530.00bn issued at the January 22, 2025 auction.
Investor demand was high, with total bids amounting to N4.06 trillion, a significant jump from N2.54 trillion in the previous auction, Meristem Securities Limited said in its pre-auction note.
Analysts said this marked increase in demand was driven by improved system liquidity, which stood at N201.55 billion as of February 4, 2025, and prevailing investor sentiment.
At the end of the Treasury Bills auction, the CBN allotted N670.00 billion, lower than the N756.02 billion in the previous auction. Meristem Securities Limited stated that this led to a bid-to-cover ratio of 4.80x, which was higher than the 3.35x recorded in the earlier auction, supported by improved liquidity and investors’ general expectations of lower rates.
Primary market auction
The Central Bank of Nigeria (CBN) conducted a primary market auction midweek where the authority offered N700 billion worth of Treasury bills across 91-day, 182-day, and 364-day tenors.
Despite a huge liquidity shortfall of more than N1 trillion in the money market, investors subscriptions came heavy, according to some traders. Subscriptions came more than threefold as the interest rate outpaced the inflation rate for the first time in a long time.
Investors submitted more than N2.4 trillion for Nigerian Treasury Bills at the midweek auction as market dynamics begin to shift. On the back of sustained appetite for long tenor bills, demand was heavily skewed toward the 364-day paper, which accounted for 95 per cent of total subscriptions recorded.
Hence, the Apex Bank allotted N774.13 billion Nigerian Treasury bills across 91-day, 182-day, and 364-day tenors, 11 per cent above the amount for subscriptions, of about N2.408 trillion. Stop rates for the 91-day fell by 100 basis points to 17 per cent, according to auction results.
Also, the naira continued its upward trajectory, appreciating to close at N1,514/$1 in the parallel market on Thursday, February 20, 2025.
This marks an N11 or 0.72 per cent gain from the N1,525/$1 recorded on Tuesday, February 18, 2025.
The sustained implementation of the Central Bank of Nigeria (CBN) forex policies by banks and Bureau De Change (BDC) operators has been credited for this strong performance.
According to available data from the CBN, the naira remained stable at the official market (EFEM), closing at N1,510/$1 on Wednesday, February 19, 2025—the same rate recorded the previous day.
CBN’s proactive leadership
The strengthening of the naira in the parallel market has been attributed to the proactive leadership of the CBN, the non-renewal of banks’ U.S. dollar swap agreements, and the growing number of participating banks involved in interbank forex sales to BDCs.
President of the Association of Bureau De Change Operators of Nigeria (ABCON), Aminu Gwadebe, commended the fiscal and monetary authorities for their strategic interventions.
“The naira’s appreciation is phenomenal and exciting. We, the Association of Bureau De Change Operators of Nigeria, congratulate the apex bank and fiscal authorities for this achievement.
“This is a result of the resilient and transformative leadership strategy of the CBN, the non-renewal of banks’ USD swaps with the apex bank, and the increasing number of banks involved in selling interbank proceeds to BDCs.
The BDCs have demonstrated an effective and potent transmission mechanism for implementing CBN forex policies.”
“The banks engage in dollar swaps with the CBN for deposit purposes. However, the apex bank did not renew these transactions, thereby increasing banks’ dollar liquidity,” he explained.
In December 2024, the CBN introduced revised guidelines permitting licensed BDCs to purchase foreign exchange directly from Authorized Dealers.
This policy aimed to curb market volatility and reduce the widening gap between the official and parallel markets.