Steady Hands in Stormy Times: Why Holding Rates Was the Right Call for Nigeria, by Rahma Olamide Oladosu
In the face of persistent global economic uncertainties and domestic challenges, the decision of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) to retain the Monetary Policy Rate (MPR) at 27.50 per cent is a deliberate and strategic move aimed at maintaining stability and buying time for ongoing reforms to yield results. While such decisions often spark debate within economic circles, a closer examination reveals prudence and foresight rooted in Nigeria’s evolving macroeconomic context.
The MPC’s 300th meeting, held on the 19th and 20th of May 2025, comes at a critical juncture for Nigeria’s economy. After a long period marked by inflationary surges, exchange rate instability, and structural inefficiencies, the country is now beginning to register modest but meaningful improvements across key indicators. The Committee’s unanimous vote to hold rather than hike or lower rates is therefore an acknowledgment of early gains and a cautious step toward sustainable recovery.
A few data points tell the story. Inflation is finally showing signs of retreat. The year-on-year headline inflation dropped from 24.23 per cent in March to 23.71 per cent in April 2025. Food inflation, which has been a major source of hardship for Nigerian households, also eased to 21.26 per cent, while core inflation declined to 23.39 per cent. These reductions, though marginal, are significant given the deep inflationary pressures of the past few years.
The progress in food inflation in particular deserves recognition. The Federal Government’s efforts to increase food supply and boost agricultural production are clearly having a positive effect. Insecurity in farming regions has long hampered food output, making even local staples unaffordable for the average Nigerian. The recent improvements suggest that security interventions and agricultural support policies are beginning to bear fruit. Yet, the MPC wisely warns against complacency, urging continued support to farmers and stronger security measures to ensure sustained progress.
Another encouraging sign is the relative stability in the foreign exchange market. The narrowing of the gap between the Nigeria Foreign Exchange Market (NFEM) and the Bureau De Change (BDC) windows reflects increasing confidence in the system. After years of sharp disparities that invited arbitrage and speculative attacks on the naira, this convergence is a welcome development. It suggests that CBN’s reform of the FX framework is beginning to deliver tangible outcomes.
With Olayemi Cardoso in charge, the Central Bank has made decisive moves to rebuild confidence in the monetary system. While the challenges are immense, his calm but firm approach to policy has begun to inspire a shift in tone among investors and economic watchers. It is particularly under Cardoso’s watch that the CBN has stayed committed to exchange rate reform, banking sector oversight, and inflation targeting without resorting to panic measures.
The improvement in the country’s external reserves, which grew to 38.90 billion US dollars in mid-May from 37.82 billion US dollars at the end of March, is another step in the right direction. This rise in reserves offers a 7.6-month import cover, a buffer that is vital as Nigeria navigates an unpredictable global trade environment and fluctuating oil revenues.
However, it is not all smooth sailing. The MPC acknowledged lingering inflationary pressures driven by factors like high electricity prices, forex demand challenges, and structural deficiencies. It also highlighted concerns about the recent dip in crude oil prices, a direct threat to government revenues and budget implementation. These warning signs underscore why a hold decision was necessary. Loosening policy now could undo the fragile gains made, while tightening further might choke growth at a time when real GDP is still recovering, having posted a decent 3.84 per cent growth in the fourth quarter of 2024.
Retaining the MPR at 27.50 per cent, along with the Cash Reserve Ratio (CRR) of 50.00 per cent for Deposit Money Banks and 16 per cent for Merchant Banks, keeps monetary conditions tight enough to discourage inflation without triggering undue credit constraints. The liquidity ratio remains at 30 per cent, providing banks with room to operate while ensuring systemic stability. In short, the CBN is walking a tightrope, balancing inflation control with the need to preserve growth momentum.
This careful navigation reflects the kind of balanced leadership Governor Cardoso has brought to the CBN. Rather than opting for dramatic swings in policy that could destabilise markets, the MPC under his guidance has shown a commitment to gradualism and evidence-based decision-making.
Investors, both domestic and foreign, crave predictability. Sudden rate hikes or cuts in uncertain times can destabilise market expectations. By maintaining current policy settings, the MPC allows existing measures time to crystallise and sends a message of confidence in its strategy.
One must also appreciate the Committee’s emphasis on inter-agency coordination. The call for the fiscal authorities to ramp up foreign exchange earnings from oil, gas, and non-oil exports is crucial. Monetary policy alone cannot fix Nigeria’s economic challenges. Structural reforms, fiscal discipline, and export diversification must go hand in hand with monetary tightening. The synergy between the Central Bank and other arms of government will determine the long-term success of economic stabilisation efforts.
The MPC’s endorsement of the ongoing recapitalisation in the banking sector is also significant. A stronger well-capitalised banking system is indispensable for credit expansion, financial inclusion, and economic resilience. By pledging to maintain oversight and enforce compliance with macroprudential regulations, the CBN is taking proactive steps to avert systemic risks and maintain confidence in the financial system.
In the broader global context, Nigeria is not alone in facing headwinds. The International Monetary Fund (IMF) has revised its global growth forecast downward to 2.8 per cent for 2025, citing persistent policy uncertainties. Central banks worldwide are grappling with the trade-offs between inflation control and economic stimulus. The MPC’s resolve to monitor both domestic and international developments closely ensures Nigeria remains adaptive and responsive to emerging shocks.
This 300th meeting of the MPC marks more than just a symbolic milestone. It represents a shift in Nigeria’s monetary policy posture toward one that is strategic, data-driven, and consistent. From a reactionary stance dictated by crisis, we are now seeing the emergence of a more steady hand on the wheel, guided by an understanding of the value of timing, patience, and long-term focus.
There will undoubtedly be critics who argue that with inflation still hovering above 20 per cent, a more aggressive stance is needed. But policymaking is not just about numbers. It is about context, trajectory, and sustainability. The gradual disinflation trend, stronger reserves, and narrowing FX gaps all point to early success under the current framework.
As Nigerians continue to endure economic pressure, the expectation for swift results is understandable. But true economic reform takes time. What the CBN under Governor Cardoso has demonstrated is that consistency, transparency, and institutional focus can gradually turn the tide. In a time of deep uncertainty, holding the line can sometimes be the most courageous decision of all.
Oladosu is a Staff Writer with the Economic Confidential
