CBN: Staying the Course in the Face of Temporary Storm
By Rahma Olamide Oladosu
At its 301st meeting held on July 21 and 22, 2025, the Monetary Policy Committee of the Central Bank of Nigeria made the deliberate decision to maintain all key policy parameters. The decision, detailed in Monetary Policy Communiqué No. 158, demonstrates a firm and disciplined approach to economic management, especially in the face of persistent inflationary pressures and an uncertain global outlook.
The Committee retained the Monetary Policy Rate at 27.50 percent. The asymmetric corridor around the MPR remains at plus 500 and minus 100 basis points. The Cash Reserve Ratio was held at 50.00 percent for Deposit Money Banks and 16.00 percent for Merchant Banks, while the Liquidity Ratio remains at 30.00 percent. By holding these instruments steady, the Central Bank is signaling confidence in the current path of monetary tightening and its cumulative effect on inflation and macroeconomic stability.
The Committee’s decision was driven primarily by the need to sustain momentum in disinflation and to contain price pressures that continue to threaten the purchasing power of Nigerians. According to the data presented in the communique, headline inflation (year-on-year) declined to 22.22 percent in June 2025 from 22.97 percent in May. This marks the third consecutive month of easing inflation, credited largely to moderating energy prices and the stabilising effect of a more orderly foreign exchange market.
Despite this welcome progress, the Committee did not downplay underlying risks. Month-on-month headline inflation actually increased to 1.68 percent in June, up from 1.53 percent in May. This uptick points to persistent short-term pressures, especially from the services sector and the rising cost of imported food. Food inflation increased to 21.97 percent in June from 21.14 percent in May, primarily due to rising prices of processed food. Core inflation, which excludes energy and unprocessed food items, also edged higher to 22.76 percent, reflecting increases in the cost of information and communication services, utilities, and personal care.
These figures highlight the complexity of Nigeria’s inflation problem. While annual inflation is gradually easing, the structural and short-term drivers of inflation remain active. This is why the Central Bank opted for continuity rather than a premature easing of policy. A rate cut at this point could risk undoing recent gains.
The Committee also considered the stability of the financial system. It expressed satisfaction with the health of the banking sector, citing stable Financial Soundness Indicators. This stability is further underpinned by the ongoing recapitalisation exercise, which the communique revealed is progressing steadily. Eight banks have already fully met the new capital requirements, while others are making strong progress toward the deadline. The Committee urged the Central Bank to sustain its oversight role to ensure that the banking sector remains safe, sound, and resilient.
On the real economy, the communique reported that Nigeria’s Gross Domestic Product grew by 3.13 percent in the first quarter of 2025. This performance compares favourably with the 2.27 percent recorded in the corresponding period of 2024. Data from the Purchasing Managers Index also suggest that the economy is on an expansionary path. While the pace of growth is modest, it reflects the gradual impact of stable macroeconomic conditions and consistent policy direction.
The external sector also recorded some improvements. Foreign exchange reserves rose to 40.11 billion dollars by July 18, representing about 9.5 months of import cover. This increase is attributed to improved capital flows, higher crude oil production, stronger non-oil exports, and a reduction in overall imports. The Committee acknowledged that exchange rate stability has been a key factor in reducing imported inflation and boosting investor confidence.
Security and agriculture also received attention. The MPC commended the Federal Government’s efforts to improve security, particularly in rural farming areas. It acknowledged the importance of timely support for the current farming season, including the provision of high-yield seedlings, fertilizers, and critical inputs. These measures are essential to improve food production and reduce food-related inflation in the coming months.
On the global front, the Committee noted that recovery in global output continues at a slow pace. It flagged ongoing tariff wars and geopolitical tensions as key risks to global supply chains and inflation trends. These global dynamics present a challenge for emerging markets like Nigeria, where imported inflation remains a threat. The communique also noted that disinflation in advanced economies has slowed, prompting caution from major central banks. Emerging markets, in turn, are adapting their policy responses based on domestic realities.
Looking ahead, the Central Bank staff projects a further decline in inflation. This outlook is based on the impact of the current tight monetary policy, stable exchange rates, declining pump prices, and an expected moderation in food prices due to the harvest season. However, the Committee emphasised that the policy environment remains uncertain, and underlying inflation risks are still present.
In light of this, the Committee believes that monetary policy must remain tight until inflationary risks subside significantly. It reaffirmed its commitment to the Bank’s price stability mandate and promised to continue monitoring developments closely.
This latest decision reflects a consistent and measured approach by the Central Bank. It shows a willingness to let data drive decisions, rather than yield to short-term political or populist pressures. In an environment where inflation remains high, the Central Bank’s refusal to alter its course prematurely demonstrates institutional maturity and focus.
The key takeaway from Communiqué No. 158 is that Nigeria’s monetary authorities are cautiously optimistic. Inflation is cooling, reserves are rising, the banking sector is stable, and the economy is expanding moderately. But none of these gains can be taken for granted. The decision to hold policy parameters steady is not a passive move; it is an active choice to defend progress, buy more time for policy transmission, and manage risks proactively.
In a country long plagued by economic policy uncertainty, the Central Bank’s current posture is refreshing. It shows that stability, though not dramatic, can be powerful. The MPC has chosen the difficult path of patience and prudence. Nigerians and the global investment community would do well to pay attention.