THE Central Bank of Nigeria (CBN) has retained the benchmark interest rate at 27.5 per cent despite a sharp drop in headline inflation in January as confirmed in the latest rebasing methodology.
The CBN governor, Olayemi Cardoso, said at the end of the 2-day monetary policy meeting (MPC) meeting on Thursday, February 20 held in Abuja.
He said the committee, after its 299th meeting to review recent economic and financial developments as well as assess the risks to the outlook for 2025, unanimously decided to hold all parameters.
All 12 members of the committee were in attendance, he noted.
The committee thus retained the monetary policy rate, known as the benchmark interest rate, at 27.50 per cent.
It retained the asymmetric corridor around the MPR at + 500/-100 basis points, the cash reserve ratio (CRR) of deposit money banks at 50 per cent, and merchant banks at 16 per cent.
It also retained the liquidity ratio at 30 per cent, he announced.
“At this meeting, the Monetary Policy Committee noted with satisfaction recent macroeconomic developments which are expected to positively impact price dynamics in the near to medium term.
“These include the stability in the foreign exchange market with the resultant appreciation of the exchange rate and the gradual moderation in the price of PMS (premium motor spirit),” Cardoso said.
He hinted, however, that the committee members were not oblivious to the risk of persisting inflationary pressures driven largely by food prices.
He said the committee noted the recent rebasing of the Consumer Price Index (CPI) by the National Bureau of Statistics, (NBS), which reviewed the weights of items in the consumption basket to reflect current consumption patterns.
“The Committee further noted that as the federal government continues to invest in PMS, security in food-producing communities, supported by other measures to enhance food supply, food prices are expected to continue to moderate,” Cardoso said.
Since April 2022, when the benchmark interest rate was at 11.5 per cent, the CBN has been tightening the benchmark interest rate to rein in inflation, The ICIR can report.
Nigeria’s inflation has surged since then and has worsened significantly since President Bola Tinubu came into office on May 29, 2023, with his dogged performance on fuel subsidy removal and exchange rate devaluation.
Between May 2023 and December 2024, headline inflation rose from 22.4 per cent to 34.80 per cent.
Its impacts on households and businesses have led to increasing costs of food items, commodities, energy, and transportation and the general slowdown in economic activities.
But following the recent rebasing of the economy by the NBS, headline inflation declined to 24.48 per cent year-on-year in January.
The apex bank committee had waited for the report of the rebasing exercise to hold its MPC meeting.
It postponed the MPC meeting in January to February but later shifted the earlier date to February 19-20.
The sharp decline in the headline inflation rate from 34.8 per cent in December 2024 to 24.48 per cent in January 2025 did not come as a surprise given the rebased of the economy, a renowned economist, Muda Yusuf, explained.
He explained that the transaction demand in December 2024 was typically much more intense because of the festivities while the spending momentum in January was predictably much slower because of lower disposable incomes following intense spending in the previous month.
“However, it is important to clarify that a drastic reduction in inflation figures is not tantamount to a reduction in the price level,” Yusuf, who is the managing director/chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), said.
According to him, inflation reduction simply means a reduction in the rate of increase in the general price level, not a price reduction.
“The drastic deceleration in inflation should, therefore, be cautiously celebrated. The reality of high prices has not changed and remains a major factor in the cost of doing business, cost of living, and poverty equation in the country.
“Households and firms are still concerned about high energy costs, the strength of the naira, high interest rate, cost of imports, transportation costs, and insecurity,” the CPPE boss said.
It is only hope that the government will recalibrate its strategies to address the major cost drivers of inflation, he said.
“What businesses and households desire at this time is a reduction in the general price level from the incredibly high levels in 2024 to a substantial moderation in 2025, which is defined in technical parlance as disinflation.
“The good news, however, is that we are beginning to see indications of such reductions in PMS, diesel, some food items, and pharmaceutical products. It is hoped that this trajectory will be sustained in the year,” Yusuf pointed out.
Other experts reactions
The managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, Razia Khan, said the rescheduling of the meeting has created additional interest in what the CPI rebasing might reveal.
“On balance, however, we expect the CBN to cite the inflation data as a justification for keeping interest rates on hold. With the CBN having raised the monetary policy rate by a modest 25bps to 27.5 percent only at its last meeting of 2024, we think any frontloaded easing might be considered premature by foreign portfolio investors and may put at risk recent hard-won stability in Nigeria’s FX market,” she said.
She expects the CBN to start easing in the second half (H2) of 2025, noting that a faster-than-expected improvement in inflation could see the date of the first rate cut brought forward.
A senior relationship manager at FSDH Merchant Bank, Ayodele Akinwunmi said if economic stability continues into the second quarter of the year, marked by stability in the forex market and a reduction in commodity prices, the CBN could consider reducing interest rates.
“By the second half of the year, we may see enough stability in the economy for the CBN to consider lowering interest rates,” he said.