Growth vs. Stability: The Difficult Trade-offs of MPC’s 2025 Decisions, by Kabir Abdulsalam

If monetary policy were a balancing act, 2025 was the year the Central Bank of Nigeria’s Monetary Policy Committee (MPC) walked a particularly narrow rope. On one side lay the danger of runaway inflation and exchange-rate instability; on the other, the risk of strangling growth with persistently high interest rates and liquidity constraints.

The decisions taken across five MPC meetings in the year tell a story not of indecision, but of deliberate restraint perhaps even stubborn discipline—in the face of economic fragility.

Whether to protect macroeconomic stability at all costs, or loosen conditions to stimulate growth in an economy already under strain.

From February, the first meeting through July 2025, the MPC chose one clear path: hold the line.

At its February meeting, the committee retained the Monetary Policy Rate (MPR) at a historically high 27.5 per cent, alongside a Cash Reserve Ratio (CRR) of 50 per cent for deposit money banks. These were not accidental numbers. They reflected a policy establishment deeply concerned about inflation expectations, food price volatility, fiscal pressures, and the still-delicate foreign exchange environment following reforms in the FX market.

That posture did not change in May or July. For three consecutive meetings, all major policy parameters were left untouched. To some observers, this looked like inertia. To others, it was consistency. The MPC’s thinking appeared to be that credibility mattered more than comfort. As one macroeconomic analyst at a Lagos-based think tank put it at that time, monetary authorities were “less worried about being popular and more concerned about being believed.”

There is merit to that view. High interest rates helped dampen speculative demand for foreign exchange and supported portfolio inflows, which in turn helped stabilise the naira. External reserves improved, and Nigeria avoided the sort of currency freefall seen in some peer economies under inflationary stress. In that sense, the MPC’s hawkish stance did contribute to macroeconomic stability.

But stability always comes with a bill.

The cost was felt most sharply in the real economy. Lending rates climbed well above 30 per cent for many borrowers, effectively shutting small and medium-scale enterprises out of formal credit. Manufacturing firms complained of stalled expansion plans, while households faced rising debt-servicing burdens. Economists sympathetic to growth concerns argued that while inflation is a tax on everyone, excessively tight money can be a chokehold on productivity.

By September, the MPC appeared ready to acknowledge this tension. Despite a cautious rate cut and marginal liquidity adjustments in the latter half of the year, the MPC’s decisions in 2025 make it clear that Nigeria remains firmly in a tight-money phase, with inflation control still taking precedence over growth stimulation.

However, the committee introduced a modest recalibration: a 50 basis-point cut in the MPR to 27.0 per cent, a reduction of CRR for commercial banks to 45 per cent, and a restructuring of the interest rate corridor. At the same time, a 75 per cent CRR was imposed on non-Treasury Single Account public sector deposits—an elegant way of tightening where liquidity was idle, while easing pressure where credit creation mattered.

This was not a pivot; it was a signal. The MPC was saying, in effect, that inflation had moderated enough to allow breathing space, but not enough to justify celebration. Analysts described the move as cautious and technically sound. An academic economist from Institute of Profession Economist and policy management in Abuja Yusha’u Aliyu while speaking on TVC news, noted that the decision showed “a central bank trying to exit emergency mode without declaring the emergency over.”

Indeed, inflation trends appeared to justify the restraint. By November, after the committee meeting, the headline inflation had declined to 14.45 per cent, continuing a gradual downward trajectory. While improved agricultural supply and easing energy costs played their part, few doubt that tight monetary conditions were central to anchoring expectations and containing imported inflation.

Still, inflation control is not a one-dimensional victory. High interest rates raise production costs, which can feed back into prices over time. This is the paradox of tight money in a supply-constrained economy: policy suppresses demand faster than it fixes structural bottlenecks.

The November MPC meeting reflected this awareness. The committee held the MPR at 27.0 per cent, opting to observe the effects of the September adjustments. The asymmetric corridor was altered to encourage savings and discourage excessive borrowing, reinforcing financial system stability without dramatic shifts. Many analysts welcomed the pause, arguing that policy credibility is built as much on patience as on action.

The debate around CRR deserves special mention. While the high CRR regime undeniably strengthened liquidity control and reduced inflationary risks, banking sector analysts have long argued that it functions as an implicit tax on intermediation. Funds sterilised at the central bank cannot support credit growth, no matter how strong demand might be. The September reduction was therefore seen as symbolic—a sign that the MPC recognises the limits of blunt instruments.

So, did the MPC stabilise or disrupt the economy in 2025?

The honest answer is both. The committee succeeded in restoring a measure of macroeconomic calm: inflation slowed, the exchange rate stabilised, and investor confidence improved. But this came at the cost of expensive credit, subdued investment, and pressure on growth-sensitive sectors. These trade-offs were not accidental; they were policy choices.

As Nigeria moves into 2026, the challenge will be transitioning from defence to construction—shifting from fighting inflation to enabling growth without reopening old wounds. Monetary policy alone cannot carry this burden. Fiscal discipline, structural reforms, and productivity-enhancing investments must now do their part.

In 2025, the MPC chose caution over comfort. History will judge whether that caution laid a foundation—or merely bought time.

*Kabir Abdulsalam writes from Abuja, can be reach via: [email protected]*