CBN retains policy instruments amid global economic pressures
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In a year marked by mounting global economic headwinds, persistent domestic inflation, and fiscal pressures, the Central Bank of Nigeria has kept its foot firmly on the brake. At its July 2025 Monetary Policy Committee meeting, the bank chose to retain all key policy instruments in a bid to consolidate ongoing disinflation trends while guarding against a possible resurgence in inflationary pressures. SAMI TUNJI writes on how the bank is confronting Nigeria’s inflationary environment amid shifting external dynamics, rising costs, and persistent uncertainty in global markets
As global economies reel from the consequences of prolonged geopolitical tensions, supply chain disruptions, and a shifting interest rate landscape, the Central Bank of Nigeria has doubled down on its inflation-fighting strategy. At the July 2025 Monetary Policy Committee meeting, the apex bank chose to hold all key monetary parameters steady—signalling a clear intent to maintain tight policy until price stability is firmly entrenched.
The July meeting marked the third consecutive hold of the Monetary Policy Rate, which has remained at 27.5 per cent since November 2024. The asymmetric corridor was kept at +500/-100 basis points, while the Cash Reserve Ratio for deposit money banks and merchant banks stayed at 50 per cent and 16 per cent, respectively. Liquidity Ratio also remained at 30 per cent.
This policy hold comes at a time when headline inflation has shown signs of deceleration. According to the National Bureau of Statistics, annual inflation dropped to 22.22 per cent in June 2025 from 22.97 per cent in May, marking the third consecutive monthly decline. However, the monthly inflation rate rose to 1.68 per cent in June from 1.53 per cent in May—indicating persistent price pressures in the short term.
While headline inflation eased, food inflation increased to 21.97 per cent in June from 21.14 per cent in May. Core inflation, which strips out volatile items like food and energy, also rose to 22.76 per cent from 22.28 per cent. This dual trend highlights the complexity of Nigeria’s inflation dynamics, which now show signs of being driven less by energy prices and more by structural bottlenecks in food supply, logistics, and the services sector.
Against this backdrop, the CBN’s decision to hold rates reflects a cautious stance. Governor Olayemi Cardoso and the MPC emphasised the need to “sustain the momentum of disinflation” and “address existing and emerging inflationary pressure.” With inflation still well above the Bank’s implicit target of single digits, and with inflationary expectations yet to be anchored, any rate cut was ruled out.
“We recognise that our policy toolkit is working. Inflation is coming down. But our goal is to bring it to single-digit levels,” Cardoso said at the last MPC briefing, adding that the country was emerging from a period of excessive money supply, largely due to “unprecedented” fiscal injections from Ways and Means and intervention funds.
“We’re operating in a very tight monetary situation. We have absolutely no choice but to do that. It’s at a cost, but it needs to be done,” he stated. He noted that the Bank would continue to rely on tools like the MPR and CRR to manage inflation expectations and anchor market confidence.
Indeed, while headline inflation has fallen, underlying components remain elevated and volatile. Imported inflation is being contained to some degree by improved exchange rate management, but domestic cost pressures—particularly in transportation, personal care, and processed food—remain stubborn.
The monetary authorities are likely to continue walking this tightrope until inflation enters a more predictable downward path. Until then, holding interest rates steady is the CBN’s way of signalling that it is not prepared to ease prematurely.
External sector stability
Beyond domestic inflation, the CBN is contending with fragile external conditions. Since early 2024, the apex bank has implemented a series of reforms in the foreign exchange market, culminating in a market-led exchange rate regime that has largely unified Nigeria’s multiple FX windows.
This reform appears to be yielding some dividends. Gross external reserves stood at $40.11bn as of July 18, 2025, providing around 9.5 months of import cover. The naira has also stabilised relative to its post-reform lows, trading between N1,500 and N1,550 per US dollar in recent weeks in the official market.
Analysts point to several factors supporting this relative stability, such as improved oil production (now hovering above 1.6 million barrels per day), increased FX inflows from diaspora remittances and non-oil exports, and a sharp reduction in aggregate imports.
The CBN has also engaged in targeted FX interventions, with reports showing about $4.1bn injected into the market in the first half of 2025 to support liquidity and reduce volatility. This strategy has helped moderate imported inflation—particularly in energy products.
However, the global context remains fragile. Geopolitical instability—especially in Eastern Europe and the Middle East—continues to affect global supply chains and commodity prices. Tariff disputes between major trading blocs, including the U.S. and China and other countries, are also creating ripple effects for emerging markets, many of which depend on imported food and technology.
For Nigeria, it is clear that FX market stability must be carefully managed, not assumed. The naira remains vulnerable to capital outflows, especially if the U.S. Federal Reserve or European Central Bank raises rates further. Foreign investors are still assessing Nigeria’s macroeconomic direction, and sustained FX inflows depend on their confidence in policy continuity.
As a result, the CBN appears intent on maintaining high interest rates to support capital inflows, reduce speculative demand for FX, and encourage the inflow of remittances through formal channels. Cardoso further emphasised that the reforms were not temporary. “The narrowing of the parallel market and official rates, the return of naira cards for international travel—these are not short-term measures. They are here to stay,” he said, urging continued vigilance, transparency, and trust-building to sustain positive momentum in the economy.
Boosting resilience
The MPC also discussed the ongoing recapitalisation of Nigerian banks—one of the most significant reforms of the current administration. So far, eight banks have fully met the new capital requirements set by the CBN, while others are said to be making progress towards the compliance deadline.
The push to strengthen capital buffers is partly a response to macroeconomic shifts. High interest rates, currency adjustments, and rising inflation increase credit risk across the banking system. With more expensive borrowing and heightened uncertainty, loan defaults may rise—especially in sectors like retail, agriculture, and manufacturing.
CBN retains policy instruments amid global economic pressures
Cardoso
In a year marked by mounting global economic headwinds, persistent domestic inflation, and fiscal pressures, the Central Bank of Nigeria has kept its foot firmly on the brake. At its July 2025 Monetary Policy Committee meeting, the bank chose to retain all key policy instruments in a bid to consolidate ongoing disinflation trends while guarding against a possible resurgence in inflationary pressures. SAMI TUNJI writes on how the bank is confronting Nigeria’s inflationary environment amid shifting external dynamics, rising costs, and persistent uncertainty in global markets
As global economies reel from the consequences of prolonged geopolitical tensions, supply chain disruptions, and a shifting interest rate landscape, the Central Bank of Nigeria has doubled down on its inflation-fighting strategy. At the July 2025 Monetary Policy Committee meeting, the apex bank chose to hold all key monetary parameters steady—signalling a clear intent to maintain tight policy until price stability is firmly entrenched.
The July meeting marked the third consecutive hold of the Monetary Policy Rate, which has remained at 27.5 per cent since November 2024. The asymmetric corridor was kept at +500/-100 basis points, while the Cash Reserve Ratio for deposit money banks and merchant banks stayed at 50 per cent and 16 per cent, respectively. Liquidity Ratio also remained at 30 per cent.
This policy hold comes at a time when headline inflation has shown signs of deceleration. According to the National Bureau of Statistics, annual inflation dropped to 22.22 per cent in June 2025 from 22.97 per cent in May, marking the third consecutive monthly decline. However, the monthly inflation rate rose to 1.68 per cent in June from 1.53 per cent in May—indicating persistent price pressures in the short term.
While headline inflation eased, food inflation increased to 21.97 per cent in June from 21.14 per cent in May. Core inflation, which strips out volatile items like food and energy, also rose to 22.76 per cent from 22.28 per cent. This dual trend highlights the complexity of Nigeria’s inflation dynamics, which now show signs of being driven less by energy prices and more by structural bottlenecks in food supply, logistics, and the services sector.
Against this backdrop, the CBN’s decision to hold rates reflects a cautious stance. Governor Olayemi Cardoso and the MPC emphasised the need to “sustain the momentum of disinflation” and “address existing and emerging inflationary pressure.” With inflation still well above the Bank’s implicit target of single digits, and with inflationary expectations yet to be anchored, any rate cut was ruled out.
“We recognise that our policy toolkit is working. Inflation is coming down. But our goal is to bring it to single-digit levels,” Cardoso said at the last MPC briefing, adding that the country was emerging from a period of excessive money supply, largely due to “unprecedented” fiscal injections from Ways and Means and intervention funds.
“We’re operating in a very tight monetary situation. We have absolutely no choice but to do that. It’s at a cost, but it needs to be done,” he stated. He noted that the Bank would continue to rely on tools like the MPR and CRR to manage inflation expectations and anchor market confidence.
Indeed, while headline inflation has fallen, underlying components remain elevated and volatile. Imported inflation is being contained to some degree by improved exchange rate management, but domestic cost pressures—particularly in transportation, personal care, and processed food—remain stubborn.
The monetary authorities are likely to continue walking this tightrope until inflation enters a more predictable downward path. Until then, holding interest rates steady is the CBN’s way of signalling that it is not prepared to ease prematurely.
External sector stability
Beyond domestic inflation, the CBN is contending with fragile external conditions. Since early 2024, the apex bank has implemented a series of reforms in the foreign exchange market, culminating in a market-led exchange rate regime that has largely unified Nigeria’s multiple FX windows.
This reform appears to be yielding some dividends. Gross external reserves stood at $40.11bn as of July 18, 2025, providing around 9.5 months of import cover. The naira has also stabilised relative to its post-reform lows, trading between N1,500 and N1,550 per US dollar in recent weeks in the official market.
Analysts point to several factors supporting this relative stability, such as improved oil production (now hovering above 1.6 million barrels per day), increased FX inflows from diaspora remittances and non-oil exports, and a sharp reduction in aggregate imports.
The CBN has also engaged in targeted FX interventions, with reports showing about $4.1bn injected into the market in the first half of 2025 to support liquidity and reduce volatility. This strategy has helped moderate imported inflation—particularly in energy products.
However, the global context remains fragile. Geopolitical instability—especially in Eastern Europe and the Middle East—continues to affect global supply chains and commodity prices. Tariff disputes between major trading blocs, including the U.S. and China and other countries, are also creating ripple effects for emerging markets, many of which depend on imported food and technology.
For Nigeria, it is clear that FX market stability must be carefully managed, not assumed. The naira remains vulnerable to capital outflows, especially if the U.S. Federal Reserve or European Central Bank raises rates further. Foreign investors are still assessing Nigeria’s macroeconomic direction, and sustained FX inflows depend on their confidence in policy continuity.
As a result, the CBN appears intent on maintaining high interest rates to support capital inflows, reduce speculative demand for FX, and encourage the inflow of remittances through formal channels. Cardoso further emphasised that the reforms were not temporary. “The narrowing of the parallel market and official rates, the return of naira cards for international travel—these are not short-term measures. They are here to stay,” he said, urging continued vigilance, transparency, and trust-building to sustain positive momentum in the economy.
Boosting resilience
The MPC also discussed the ongoing recapitalisation of Nigerian banks—one of the most significant reforms of the current administration. So far, eight banks have fully met the new capital requirements set by the CBN, while others are said to be making progress towards the compliance deadline.
The push to strengthen capital buffers is partly a response to macroeconomic shifts. High interest rates, currency adjustments, and rising inflation increase credit risk across the banking system. With more expensive borrowing and heightened uncertainty, loan defaults may rise—especially in sectors like retail, agriculture, and manufacturing.
Against this backdrop, recapitalisation serves two purposes: to bolster banks’ ability to absorb shocks and to ensure financial institutions are well-placed to support economic growth once monetary conditions begin to ease.
Financial Soundness Indicators remain broadly stable. Capital Adequacy Ratios are comfortably above the 10 per cent regulatory minimum. Liquidity ratios are also strong, and the Non-Performing Loan ratio remains close to the 5 per cent prudential benchmark.
The CBN has reiterated its commitment to supervising banks during this transition, stressing that it will enforce sound risk management and provisioning standards. This is particularly important given the need to maintain public confidence in the banking system.
Nonetheless, there are lingering questions about how smaller banks—especially those without strong foreign partners or public listing access—will meet the new capital thresholds. Mergers, acquisitions, and capital raises are expected over the next year, and the CBN has promised to provide guidance to ensure that recapitalisation does not lead to systemic stress.
Inflation control
One of the enduring policy dilemmas facing the CBN is the trade-off between price stability and economic growth. Nigeria’s GDP expanded by 3.13 per cent in Q1 2025, up from 2.27 per cent in Q1 2024, suggesting a modest acceleration. Yet this growth remains uneven and vulnerable to shocks.
The MPC acknowledged recent improvements in the Purchasing Managers’ Index, which remains in expansionary territory, signalling resilience in the real sector. But cost pressures, insecurity, and weak infrastructure continue to suppress productivity in agriculture and manufacturing—two critical sectors for inflation control and job creation.
Food inflation remains elevated due to insecurity in key farming zones, rising transport costs, and poor storage infrastructure.
While energy prices have moderated, these gains have not fully translated into lower logistics costs. The result is a structurally embedded inflation pattern, in which food and services continue to drive core price increases.
Without doubt, structural inflation drivers—such as supply constraints, poor transport infrastructure, and a low-tech farming system—are largely outside the Bank’s control. In this context, the current monetary policy stance is necessary, but not sufficient. Without complementary fiscal reforms, targeted social investment, and improved security, inflation may remain volatile and reactive to external shocks.
The CBN governor has called for increased collaboration between fiscal and monetary authorities. “That handshake between the fiscal and monetary side, which is very important, will continue. We’ve had useful discussions that show greater collaboration going forward,” he said at the last MPC briefing.
However, the decision of the CBN to hold rates has been assessed with mixed views. The PUNCH earlier reported that businesses across Nigeria ranked high interest rates as the most severe constraint affecting their operations in June 2025, overtaking long-standing challenges such as insecurity and poor electricity supply. The apex bank disclosed this in its June 2025 Business Expectations Survey, which polled 1,900 firms across the agriculture, services and industrial sectors. According to the report, high interest rates scored 75.6 on the constraint index, followed by insecurity at 75.2 and insufficient power supply at 74.3.
“Respondents identified High interest rate (75.6), Insecurity (75.2) and Insufficient power supply (74.3) as the top three business constraints in June 2025, highlighting concerns around factors that directly impact operational stability and profitability,” the CBN stated in the report. The findings reflect increasing discomfort among business operators, many of whom are struggling with expensive credit amid tight monetary conditions.
The Director-General of the Lagos Chamber of Commerce and Industry, Dr Chinyere Almona, earlier warned that retaining the MPR at 27.5 per cent translates to a significant burden on businesses.
“We must restate that the interest rate at 27.5 per cent remains a depressing burden on businesses. We, therefore, desire to see a reduction in the Monetary Policy Rate,” Almona said.
Also, former Chief Economist at Zenith Bank, Marcel Okeke, criticised the MPC for maintaining the rate, which he claimed was damaging to the real economy.
“The tight monetary policy of the Central Bank of Nigeria is injurious; it is dangerous to many operators in the economy. To any business that needs funding, the high interest rate is injurious. As a matter of fact, many small businesses have been crowded out of the financial system. They cannot access funds,” he said.
However, Cardoso during the MPC briefing noted that while year-on-year inflation figures were encouraging, the uptick in monthly inflation indicated that underlying price pressures persisted, necessitating a cautious monetary policy stance.
He also pointed to the impact of global geopolitical tensions and ongoing tariff wars, which could disrupt global supply chains and drive up the cost of imports.
Also, the Nigeria Employers’ Consultative Association commended the CBN for sustaining a tight monetary policy stance. NECA’s Director-General, Mr Adewale-Smatt Oyerinde, described the move as a necessary step to consolidate recent economic gains and ensure long-term stability.
