As Nigeria’s Central Bank prepares for its 302nd Monetary Policy Committee (MPC) meeting on September 22-23, 2025, the economic landscape presents a study in contrast. After nearly eighteen months of aggressive monetary tightening that pushed the Monetary Policy Rate (MPR) to a historic 27.50 percent, policymakers now face their most nuanced decision in recent memory: whether to begin unwinding the restrictive stance that helped tame Nigeria’s inflation surge. The stakes could not be higher. The inflation rate in Nigeria decreased to 21.88 percent in July from 22.22 percent in June of 2025, marking the fourth consecutive monthly decline from January’s peak of 28.9 percent. Yet this encouraging trajectory must be weighed against persistent structural challenges and the fragile nature of recent gains.
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A delicate balancing act
Recent polling of Nigerian economists reveals the complexity of the moment. In a BusinessDay survey of 12 leading economists, eight expect the CBN to maintain the current MPR at 27.50 percent, while three forecast a modest 25-basis-point cut to 27.25 percent, and one anticipates a more substantial reduction to 27.00 percent. This distribution underscores the uncertainty surrounding Governor Olayemi Cardoso’s next move. The case for maintaining the status quo rests on several pillars. First, the Central Bank of Nigeria will sustain the Monetary Policy Rate as an anchor for inflation management as part of its priorities for 2025, as Governor Cardoso has emphasised. Despite the encouraging headline numbers, inflation at 21.88 percent remains nearly four times the CBN’s long-term target range of 6-9 percent. More troublingly, food inflation continues to outpace overall price growth, reflecting deep-seated structural issues in Nigeria’s agricultural value chains. For millions of Nigerians, whose consumption baskets are dominated by food items, the inflation experience remains painfully acute. Premature policy easing could risk re-anchoring expectations upward, particularly given the volatile nature of Nigeria’s food markets.
The naira’s fragile stability
The relative stability of the naira represents perhaps the CBN’s most significant achievement over the past year. The currency’s steady performance around ₦1,533/$, supported by improved foreign exchange liquidity and sustained foreign portfolio inflows, has been crucial in dampening imported inflation pressures. The benchmark interest rate in Nigeria was last recorded at 27.50 percent, and this elevated rate has been instrumental in attracting the foreign capital necessary to support the naira. Any signal of monetary easing could trigger capital flow reversals, potentially undermining the hard-won currency stability that has been central to the disinflation process. The memory of previous episodes of currency volatility remains fresh in both policymaker and investor consciousness.
Emerging arguments for flexibility
However, the case for a cautious rate cut is gaining traction among a minority of analysts. Nigeria’s growth momentum remains subdued, with Q2 2025 GDP expanding just 2.8 percent year-on-year—below the population growth rate. The current monetary stance, while necessary for price stability, has severely constrained credit to the real economy, particularly affecting small and medium enterprises that form the backbone of job creation. The structural improvements in Nigeria’s economy also provide grounds for optimism. The continued ramp-up of the Dangote Refinery has dramatically improved domestic fuel supply, reducing logistics costs and the inflationary pass-through effects that have plagued the economy for years. The main harvest season is also underway, which should naturally apply downward pressure on food prices in the coming months. Moreover, after January’s change in inflation methodology, our panel has cut its 2025 inflation forecasts by 3.3 percentage points. Panellists now expect a high base of comparison and the lower weight of food in the basket to bring inflation under 2024’s level by more than previously expected. This technical adjustment, while not eliminating underlying price pressures, does provide additional statistical tailwinds for the disinflation process.
Global context and policy coordination
The global monetary policy environment adds another layer of complexity. With major central banks, including the U.S. Federal Reserve, maintaining elevated interest rates to combat inflation, Nigeria must carefully balance domestic considerations against external pressures. A premature rate cut could discourage foreign portfolio investment and put pressure on the naira, particularly given Nigeria’s continued reliance on external financing. The CBN’s credibility, painstakingly rebuilt under Governor Cardoso’s leadership, represents a valuable asset that must be preserved. The governor’s emphasis on data-dependent decision-making and transparent communication has helped restore investor confidence after years of policy uncertainty. Any policy shift must be carefully calibrated to maintain this hard-won credibility.
Reading the forward guidance
The most likely scenario for the September MPC meeting is a decision to hold the MPR at 27.50 percent, accompanied by nuanced forward guidance that keeps the door open for future easing. This approach would signal that while the CBN recognises the improving inflation dynamics, it remains committed to ensuring the sustainability of the disinflationary process. Such a stance would reflect what might be termed a “hawkish hold”—maintaining restrictive policy while acknowledging the evolving economic landscape. The committee’s communication will likely emphasise its data-dependent approach and the need to see further evidence of broad-based and durable disinflation before considering policy adjustments. Key indicators that the MPC will be monitoring include the trajectory of core inflation, food price dynamics during the harvest season, foreign exchange market stability, and the pass-through effects of previous policy tightening. The committee will also be watching global developments, particularly any shifts in major central bank policies that could affect capital flows.
The path ahead
Should the disinflation trend continue through the fourth quarter, the November MPC meeting could present a clearer window for policy adjustment. By then, the committee will have additional data points, including the full impact of the harvest season on food prices and further evidence of whether the current disinflationary trend is sustainable. The eventual policy easing, when it comes, is likely to be gradual and carefully telegraphed. The CBN has learnt from past episodes where abrupt policy shifts contributed to economic volatility. A measured approach to policy normalisation would help preserve the gains made in inflation reduction while providing necessary support to economic growth.
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Conclusion: Patience as policy
Nigeria’s monetary authorities face a classic central banking dilemma: the tension between addressing current economic conditions and maintaining the credibility necessary for long-term price stability. While the economic data increasingly support the case for policy adjustment, the risks of moving too early continue to outweigh the benefits of immediate action. The September MPC meeting represents a crucial test of the CBN’s commitment to its data-dependent approach. A decision to hold rates at 27.50 percent would signal that the central bank prioritises the durability of disinflation over short-term growth considerations—a stance that, while painful for borrowers, may be necessary to secure long-term macroeconomic stability. As one economist in our survey aptly noted, “The economy still needs more time to stabilise.” In an environment where policy credibility is hard-won and easily lost, patience may indeed prove to be the most prudent policy stance. The tide may be turning, but the CBN appears determined to ensure it has turned decisively before adjusting course.
Prediction: The MPC will likely maintain the MPR at 27.50 percent at its September meeting, with the possibility of a more substantial policy discussion emerging at the November session, contingent on continued disinflation and structural improvements in the economy.
Dr Oluyemi Adeosun, Chief Economist, BusinessDay Nigeria.
