Why MPC should stay cautious in September meeting – Yemi Kale

…Naira strengthens to 1,500/$

As Nigeria’s Monetary Policy Committee (MPC) prepares for its September 22, 2025, meeting, Yemi Kale, Group Chief Economist and managing director of Research and Trade Intelligence at the African Export-Import Bank (Afreximbank), has urged caution in the committee’s interest rate decision.

He made this known during an interview with BusinessDay at the just concluded Intra-African Trade Fair in Algiers, Algeria.

The Central Bank of Nigeria (CBN) has announced that the 302nd meeting of its Monetary Policy Committee (MPC) will take place later this month at the CBN head office in Abuja.

Responding to the question, “Is it time for a rate cut for Nigeria as the MPC meets on September 22?” Kale noted that while inflation has begun to ease from its peak, it remains high, and the credibility of monetary policy is still being tested.

According to him, the CBN’s current stance, keeping the policy rate above 20 per cent, has played a key role in attracting foreign portfolio inflows (FPIs), which have helped stabilise the foreign exchange (FX) market and support reserve accumulation.

However, Kale warned that this policy comes at a structural cost. Elevated interest rates tend to deter foreign direct investment (FDI), as investors opt for safer, short-term returns in government securities rather than long-term commitments in sectors like infrastructure, manufacturing, or services. The result, he said, is a trade-off between short-term liquidity stability and long-term productive capital inflows.

“Cutting rates too early could reignite inflation and undermine FX stability,” he explained. “But holding rates too high for too long entrenches reliance on volatile FPIs and crowds out both domestic investment and critical FDI needed for industrialisation and job creation.”

Kale expects the MPC to take a cautious stance in September, either holding rates steady or making only a marginal cut pending further confirmation of a sustained decline in inflation.

“The real challenge is sequencing,” he said. “Once inflation shows a durable downtrend and FX buffers are stronger, Nigeria will need to gradually ease rates to attract FDI while maintaining a credible anti-inflation stance.”

Striking this balance is essential, he added, noting that “Nigeria must move from stabilising with FPIs to transforming with FDI.”

The MPC, which is responsible for setting monetary policy to ensure price and financial system stability, will review recent economic and financial developments both within and outside the country. Key decisions on interest rates, inflation control, and overall economic direction are expected to emerge from the session.

United Capital Research forecasts that Nigeria’s headline inflation rate will decline to 20.83 per cent in August 2025, down from 21.88 per cent in July 2025. The anticipated moderation is attributed to a combination of factors, including falling prices of major food items, relatively stable energy prices, particularly Premium Motor Spirit (PMS) and Naira against the US Dollar.

“Should this forecast materialise, August would mark the fifth consecutive month of disinflation, beginning in April 2025. Nonetheless, at 20.83 percent, inflation remains elevated and continues to erode purchasing power and constrain economic growth. Sustained efforts to improve security and boost agricultural output are critical to achieving low, growth-supportive inflation in Nigeria. United Capital Research maintains a positive outlook on Nigeria’s macroeconomic stability. However, we believe the current inflation trend presents a compelling case for the MPC to consider easing its tight monetary policy stance,” analysts at United Capital said.

United Capital Research expects the MPC to implement a modest rate cut of between 0.25 per cent and 0.50 per cent at its September 2025 meeting, while keeping other policy parameters unchanged. Such a move would signal confidence in the ongoing disinflation trend and stronger external buffers, without undermining policy credibility. It will also stimulate GDP growth in a manner that will be inclusive. By easing cautiously, the MPC can support growth without compromising its commitment to fighting inflation.