Nigeria’s Monetary Policy Committee (MPC) is unlikely to reduce the Monetary Policy Rate (MPR) in the second half (H2) of 2025 despite naira stability and a slowdown in core inflation.
Uche Uwaleke, professor of Capital Market and president of the Capital Market Academics of Nigeria, cited persistent liquidity pressures driven by Federation Account Allocation Committee (FAAC) allocations, exchange rate pass-through effects, the need to maintain positive real interest rates to attract portfolio inflows, and recommendations from the International Monetary Fund (IMF).
The IMF, in its 2025 Article IV Consultation Report, had advised the Central Bank of Nigeria (CBN) to maintain tight monetary conditions, stating that easing should only be considered if inflation slows significantly.
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“Monetary policy is expected to remain tight through year-end 2025, with no MPR cuts likely, unless inflation slows dramatically,” Uwaleke said, noting that inflation is projected to moderate further to around 20 percent by December 2025. He made these remarks during a presentation at the Arthur Steven Asset Management (ASAM) Webinar Series on Wednesday.
The MPC, at its 301st meeting held on July 21 and 22, 2025, reviewed recent economic and financial developments and decided to hold all policy parameters constant. The MPR was retained at 27.5 percent. The asymmetric corridor around the MPR was maintained at +500/-100 basis points. The cash reserve ratio (CRR) was kept at 50.00 percent for deposit money banks and 16 percent for merchant banks. The liquidity ratio remained unchanged at 30.00 percent.
Olayemi Cardoso, governor of the CBN, said the decision to maintain the current stance was informed by the need to sustain disinflation momentum and manage inflationary pressures effectively. He explained that the MPC would continue to rigorously assess economic conditions and inflation trends to inform future decisions.
Uwaleke highlighted that the economy is expected to continue recovering, supported by macroeconomic stability, steady FX markets, and improved earnings across corporates. He pointed to banking, consumer goods, telecoms, and agriculture as sectors with positive outlooks, while warning that import-dependent manufacturing stocks may remain pressured by high FX costs. He also noted that oil and gas stocks could remain vulnerable to global oil price volatility.
On the fixed-income front, Uwaleke said monetary tightening is expected to persist throughout 2025, which would keep yields attractive. He projected that real yields would remain relatively high, continuing to attract both domestic and foreign investors, especially in short-term instruments. Yields, he said, are likely to moderate to around 12 to 13 percent as inflation gradually eases.
His investment recommendations include: focusing on fundamentally strong blue-chip equities, especially in the banking sector, with preference for those that met the CBN recapitalisation deadline and exited the forbearance regime. For fixed income, he advised sustained investment in high-yielding Federal Government of Nigeria (FGN) securities and cautious exposure to longer-tenor naira bonds due to their sensitivity to interest rate changes.
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Uwaleke also recommended deploying FX-hedged instruments and Eurobond exposures to reduce naira risk, while advocating a diversified portfolio that combines local equities and fixed income to balance yield and growth. He suggested that equity positions be deployed early in the third quarter, taking advantage of FX rate stability, while exercising caution with unhedged exposures in the fourth quarter.
