• Policy can’t be tighter, but easing will be premature, says Yusuf
• Economists expect MPC to keep interest rate at 27.5%
• World Bank’s concern, Tinubu’s growth target constitute pressure
At 23.7 per cent, the headline inflation eased to its lowest since June 2023. Still, the Monetary Policy Committee (MPC) is burdened with significant external pressure that could undercut its resolution at the end of its crucial meeting tomorrow.
For one, there is an uptick in global uncertainty, making re-inflation of the global economy a major concern for policymakers, analysts and economic agents.
Already, the uncertain international crude market unsettled Nigeria’s economic outlook, with the earlier grip on the foreign exchange market slipping off, albeit gradually.
If the MPC signals a rate cut, Nigeria could see a significant capital flight, leading to another major pressure on the currency market. The negative real rate at the money market, interestingly, is a disincentive for keeping investment funds in the local market.
For the meeting, a rate hold seems to hold the ace with local and international stakeholders agreeing it would be premature to ease.
In its May 2025 Nigeria Development Update (NDU), the World Bank warned against the consequences of a rate cut, saying it would be important to sustain tightening as “prices remain high”.
The Chief Executive of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, seems to have shifted his hardline view on the need to lower the interest rate, saying a cut could unsettle the financial market with the world leaning against uncertainty.
Until the last two weeks, there was a consensus that the United States would need the right monetary policy to wade off tariff-driven inflation. President Donald Trump’s selective deals may have softened the fear of new inflation, except that the White House might no longer be taken at its word anymore.
That means the market is not sure that an elevated tariff era is off the table. If the United States keeps interest rates high, other central banks will necessarily maintain or increase rates to hedge against capital flight.
Nigeria is also in the quagmire. In the thinking of the Central Bank of Nigeria (CBN), the foreign exchange (FX) market battle has not been won, but there are pockets of wins that must be sustained, even if interest rates are necessarily held on the roof top.
At a 30 per cent liquidity ratio (LR), a prudential guideline now dusted as a strong money supply weapon, and a monetary policy rate (MPR) of 27.5 per cent, Nigeria ranks among top ten expensive markets to secure loans.
With an asymmetry corridor of -100/+500, banks get overnight liquidity from the CBN at 32.5 per cent and deposit excess at 26.5 per cent, making risk-based funding extremely prohibitive.
This has consequences for the current administration’s aspiration to grow the economy from its current $170 billion to $1 trillion and detracts from efforts to achieve the milestone.
Nigeria finished at 3.4 per cent in real time last year, while the nominal growth rate stood at 17 per cent. The World said the country would need to quintuple the current speed to hit the mark in 2030.
An independent analysis by The Guardian suggested it would take the country 11 years at its current progression to achieve the target.
The current banking capitalisation, according to the CBN Governor, Yemi Cardoso, was taken to support President Bola Tinubu’s growth plan. This suggests the CBN is accommodative of the fiscal agenda. Lower interest rates are required to stimulate consumption, increase production and achieve a faster growth rate.
Yusuf said the disruption triggered by the Trump administration is yet to fizzle out, and it is not clear how long it will last, and that remains a major issue even for the domestic economy. He noted: “To that extent, it is extremely difficult to assume that we have arrived at a kind of equilibrium. In my view, it is mostly unlikely that there would be an easing of monetary policy, even though the last inflation figure showed a slight decline.
“I am also not expecting that there would be further tightening because monetary policy cannot be tighter than what it is now. We do not want to completely strangulate the financial system. We have a cash reserve ratio (CRR) that is the highest in the whole world; it is at 50 per cent. We have an MPR, which is also one of the highest in the world at 27.5 per cent.
“These things are already at the extreme. So, what is likely to happen is just to hold things as they are while we watch how things unfold, especially at the global level.”
Also, Prof. Godwin Oyedokun of Lead City University said the focus of the MPC meeting should consider several factors, especially given the current economic context.
He said while inflation might be sliding, the decision on whether to continue tightening policy should weigh several options, including the fact that inflation is consistently declining. This could indicate that previous tightening measures are working.
“However, high-interest rates can stifle growth, investment and consumer spending. Bringing down the interest rate from 27.5 per cent could be warranted if inflation is under control and the economy requires stimulus. The MPC needs to strike a balance between controlling inflation and fostering economic growth. The decision should be based on comprehensive data and analysis of the current economic landscape,” he said.
For the former vice chancellor of Nasarawa State University, Mohammed Akaro Mainoma, this is not the time for either further tightening or easing, as the coast is not yet clear. He said he would expect the MPC to hold the rate.
An economist, Tolulope Alayande, agreed that the CBN’s MPC should retain the asymmetric corridor, CRR, LR and MPR at their current level. He argued that though inflation looks to be receding, it has remained a concern.
“What should be important is how to maintain the present gains while being cautious,” he said. But on the flip side of the coin is the pressure of the cost of borrowing, low purchasing power and the increasing unsold goods that are piling on the real sector as manufacturers struggle, he admitted.
“I understand the situation very well, but I am not sure if there is any option available at this time. Reducing the rate will sound good, but unwise economically. I will not advocate that now. The country needs more time to deepen the current stability,” he explained.
But to Mohammed Ande, an investment banker, the World Bank report has pointed to the route to take. He maintained that achieving stability in the foreign exchange market is crucial to the survival of the manufacturing sector.
“I do not think the time to reduce the rate has come yet. I think the MPC will hold the rate at least for now. The focus should be on increasing remittances to strengthen the naira. Foreign exchange inflow is very critical to the overall well-being of the economy. The CBN should also focus on collaborating with the fiscal authorities, especially the Ministry of Trade and Investment. Then, the Nigerian National Petroleum Company Limited (NNPCL) should reconcile its account to ensure remittances into the federation account,” he said.
Mohammed also faulted the lack of transparency and accountability at the state level, saying “Nigerians should hold their state accountable”.
“We have seen the quantum of money that has gone to the states from the federation account. Is the quality of life of the people better now? I must also recognise that the compliance level of the implementation of the N70,000 minimum wage is the highest in the history of Nigeria,” he said. (Guardian)
