THE Central Bank of Nigeria (CBN) kept the benchmark interest rate unchanged at 27.5 per cent on Tuesday, May 20, along with other parameters, raising concerns over the impact of declining crude oil on the 2025 budget.

The benchmark interest rate is the official rate that guides deposit money banks, mortgage institutions, and financial contracts on the proper cost of funds in their financial transactions, which guides lending to macro, small, and medium enterprises.

The CBN governor, Olayemi Cardoso, announced this at the end of a two-day Monetary Policy Committee (MPC) meeting in Abuja.

The decision marks the second time in a row the apex bank has held rates unchanged.

He said the committee unanimously retained the benchmark interest rate at 27.5 per cent, asymmetric corridor around the MPR at + 500/-100 basis points, cash reserve ratio (CRR) of deposit money banks at 50 per cent, and merchant banks at 16 per cent.

Cardoso said the committee’s unanimous decision was driven by recent positive macroeconomic indicators, driven largely by food price moderation and exchange rate stability.

He said the committee noted the relative improvements in some key macroeconomic indicators, which are expected to support the overall moderation in prices in the near to medium term.

“These include the progressive narrowing of the gap between the Nigerian Autonomous Foreign Exchange Market (NAFEM) and Bureau de Change (BDC) windows,” Cardoso said.

He also noted there had been a moderation in energy (fuel and diesel) price stability, as he lauded government efforts at increasing food supply.

However, the committee urged the authorities to step up the fight against insecurity, especially in farming communities.

It also urged the government to provide necessary inputs to farmers to further boost food production.

“The committee, however, acknowledged underlying inflationary pressures, driven largely by high electricity prices, persistent foreign exchange demand pressure, and other legacy structural factors.

“The MPC noted new policies introduced to boost local production, reduce foreign currency demand pressures, and thus lessen the pass-through to domestic prices,” Cardoso said.

In its MPC meeting held in February, the committee retained the benchmark interest rate for the first time in over two years.

It had steadily raised the rate from 11.5 per cent in 2022, including six hikes in 2024 alone, amounting to a cumulative 875 basis points.

CBN worries over declining oil price

The MPC, however, expressed concerns about the recent decline in crude oil prices, attributable to increased production by non-OPEC members, as well as uncertainties associated with the United States’ trade policy, which the CBN said presented new challenges for fiscal receipts and budget implementation.

The committee further called on the fiscal authority to strengthen current efforts at enhancing foreign exchange earnings, especially from gas, oil, and non-oil exports.

Committee urges banks to sustain oversight functions

Cardoso reaffirmed the continued stability of the banking system, attributing it to notable improvements in key performance indicators, and observed the appreciable progress in the ongoing recapitalisation exercise.

He said, “The MPC also called on the bank to sustain its effective oversight of the industry to ensure compliance with regulatory and macro prudential guidelines.”

Stressing the relative stability observed in the foreign exchange market, Cardoso said the committee wanted banks to sustain the implementation of the ongoing reforms to further boost market confidence.