By Chinwendu Obienyi
Economic analysts and investors are keenly anticipating today’s verdict from the Central Bank of Nigeria’s Monetary Policy Committee (MPC), which faces a critical crossroads: whether to maintain its current tight monetary stance or initiate a gradual easing of interest rates.
After months of aggressive tightening, headline inflation appears to be retreating, offering policymakers some relief.
Yet, this fragile progress is shadowed by renewed global turbulence from oil price volatility and geopolitical tensions to uncertainty over U.S. policies.
At the last MPC meeting in February, the committee decided to keep the interest rate unchanged at 27.50 per cent, retaining the asymmetric corridor around the monetary policy rate (MPR) at +500/-100 basis points, cash reserve ratio (CRR) for deposit money banks (DMBs) at 50 per cent, maintaining its stance on price stability and economic growth.
Briefing newsmen of the MPC decisions and considerations, the Governor, CBN, Olayemi Cardoso, emphasised that the committee was aware of persistent inflationary pressures, particularly driven by food prices.
He stated that the new Consumer Price Index (CPI) methodology, which resulted in a rebased inflation rate of 24.48 per cent for January 2025, more accurately reflects current economic realities and consumption patterns.
Whilst stating that the CBN’s orthodox monetary policies have begun to yield positive results, Cardoso reiterated that the apex bank is committed to striking a balance between controlling inflation and sustaining economic growth.
Since the meeting, there have been interesting developments. Firstly, inflation figures for February declined to 23.18 per cent, rose again to 24.23 per cent in March before easing to 23.71 per cent in April.
The April figure paints a more optimistic picture for inflation as it was driven by broad-based easing across food, core, and energy segments. According to the National Bureau of Statistics (NBS), food prices moderated by 53 basis points (bps) which was underpinned by a significant moderation in farm produce prices, partly reflecting the impact of the off-season harvest, while core inflation decelerated (105bps to 23.39 per cent y/y) primarily due to lower utilities and transports costs. On a month-on-month basis, headline inflation slowed by 204 bps to 1.86 per cent.
Furthermore, the global economic landscape has grown increasingly volatile and uncertain, primarily driven by persistent trade protectionist policies in the US. Thus, it is expected that the MPC is likely to take some developments into account before making its decisions, particularly the elevated global uncertainty and its adverse implications for naira stability, despite a positive real rate of return, given the current inflation rate.
U.S trade policies
Recent tariff hikes by the US administration have intensified global trade tensions, heightening economic uncertainty across both advanced and emerging markets. In response, central banks have adopted a cautious policy stance as they evaluate the potential impact of US trade measures on their domestic economies.
Specifically, the US Federal Reserve held its benchmark interest rate steady at 4.25–4.50 per cent for the fourth consecutive meeting in May, citing balanced risks between elevated inflation and rising unemployment. This decision comes despite ongoing disinflation—headline inflation eased by 10bps to 2.3 per cent in April—and a contraction in economic activity, with Q1 2025 GDP declining by 0.3 per cent quarter-on-quarter.
Conversely, in response to mounting downside risks to growth and a continued decline in inflation, both the Bank of England (BoE) and the European Central Bank (ECB) have moved to ease monetary policy. The ECB reduced its main refinancing rate, deposit facility rate, and marginal lending facility by 25bps each in April, marking its third consecutive rate cut. Similarly, the BoE lowered its policy rate by 25bps to 4.25 per cent at its May meeting, following a two-meeting pause.
Looking ahead, while de-escalation talks between the US and key trading partners— particularly the UK and China—have led to some tariff reductions, the persistence of broader trade restrictions continues to pose downside risks to global economic stability. In this context, US interest rates are expected to remain elevated, primarily due to high inflation risks. Meanwhile, the extent of policy easing across other advanced economies will hinge on the severity of growth deterioration stemming from ongoing trade frictions.
Gradual economic recovery amid risks
Data from the CBN’s Purchasing Managers Index (PMI) indicates a sustained improvement in economic activity compared to the same period last year. The composite PMI rose consecutively from 50.2 in January to 52.3 in March, before moderating slightly to 52.2 in April, with notable expansion across the services, agriculture, and industrial sectors.
This upturn was largely supported by stronger consumer demand and easing cost pressures. At the same time, domestic crude oil production has shown a modest recovery relative to 2024 levels, driven by enhanced pipeline surveillance and a gradual rebound in oil sector investment. Average crude output in Q1 2025 stood at 1.67 mb/d (Q4 2024: 1.63 mb/d; Q1 2024: 1.54mb/d), with April production settling at 1.68 mb/d.
Recent comments from the International Monetary Fund (IMF) and World Bank suggests that economic momentum will remain firm through the rest of the year, with full-year growth projected at 3.2 per cent and 3.90 per cent, respectively. Although the recent CPI rebasing has introduced a degree of uncertainty in interpreting current inflation trends, price pressures have moderated compared to the previous year. This is primarily due to reduced naira volatility and slower energy price increases. However, consumer prices remain high, and the recent naira volatility tilting inflation risks to the upside.
Currency woes and capital flight
Elsewhere, in the FX market, the naira has come under renewed pressure. Heightened global uncertainty stemming from the tariff war triggered capital outflows from foreign portfolio investors, further tightening FX liquidity. In addition, international oil prices declined amid expectations of softer global demand and OPEC and its allies’ decision to raise crude oil supply, amplifying concerns about Nigeria’s external earnings outlook and the sustainability of its FX reserves. As such, the CBN increased its intervention in the FX market to meet the shortfall and curb excess naira volatility.
Based on data gathered from Cordros Research, an investment and research based firm, CBN’s net inflow into the FX market in March and April reached $2.61 billion, compared to the net outflow of $928.40 million in January and February this year, when capital inflows were stronger.
The external reserves also fell to an 8-month low of $37.80 billion in April on account of higher FX supply and debt service payments before increasing again to $38.30 billion as of May, 14. On average, the naira weakened by 3.52 per cent month-on-month (m/m) to N1,579.80/$1 in April from N1,524.27/$1 in March. So far in May, the closing rate has hovered around N1,589.00/$1 – N1,615.00/$1.
Analysts’ views
Under the new CPI methodology, the current inflation rate suggests a return to positive real interest rates. However, challenges in interpreting inflation dynamics under the rebased CPI framework are likely to remain a key concern for the MPC.
Founder, Cowry Asset Management Limited, Johnson Chukwu, stressed that the April 2025 CPI report marks a turning point in Nigeria’s inflation narrative, particularly as the underlying drivers begin to shift.
“With inflation showing signs of easing and the currency relatively stable, we foresee the Committee considering a modest rate cut of 25 basis points. This would mark a cautious but symbolic shift in policy direction. At its last meeting in February, the MPC opted to pause its tightening cycle, maintaining all parameters amid early signs of inflation cooling.
With the April CPI print confirming that trend, the May policy decision could mark the beginning of a measured monetary easing cycle”, Chukwu explained.
In her views, Macroeconomic Strategist at Cordros Securities, Esther Mayowa, noted that inflation risks are tilted to the upside, particularly as the naira continues to experience gradual depreciation, reinforcing the need to anchor inflation expectations.
She stated that the MPC is expected to weigh the implications of heightened global uncertainty and the persistence of elevated global interest rates, which justifies the need to preserve interest rate differentials and limit capital outflows.
“In this context, a rate cut—especially against the backdrop of weaker oil prices and fragile investor sentiment—could undermine foreign investor confidence. Accordingly, we expect the MPC to maintain a cautious stance by holding the MPR at 27.5 per cent and leaving all other policy parameters unchanged”, Mayowa said.
Ultimately, the May MPC meeting is poised to be a defining moment for Nigeria’s 2025 monetary policy narrative. There would certainly be questions as to if the CBN will prioritize anchoring inflation expectations and shielding the naira from further shocks or if it will take its first step toward easing the monetary reins to support economic recovery.
In either case, the decision will reflect the delicate balancing act the CBN faces—managing the tug-of-war between domestic stability and external vulnerability in an increasingly complex global economic environment.