The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) has reduced the Monetary Policy Rate (MPR) by 50 basis points, lowering it from 27.5 percent to 27 percent.

The decision was announced by CBN Governor, Olayemi Cardoso, during the post-MPC press briefing on Tuesday, following the Committee’s 302nd meeting in Abuja.

Alongside the MPR cut, the MPC narrowed the asymmetric corridor around the benchmark rate to +250 and -250 basis points, from the previous +500/-100 basis points.

This adjustment, according to the CBN, is intended to strengthen liquidity management and provide clearer signals to the financial markets.

Cardoso explained that the adjustment reflects the Committee’s cautious attempt to ease monetary conditions in response to signs of moderating inflation and improving macroeconomic fundamentals.

Other Policy Decisions

Cash Reserve Ratio (CRR): Retained at 45 percent for commercial banks; set at 16 percent for merchant banks.

Liquidity Ratio: Maintained at 30 percent.

The CBN said these measures were carefully balanced to sustain ongoing disinflation efforts while ensuring the banking sector has adequate liquidity to support credit expansion and economic growth.

Basis for CBN’s Decision
The MPC’s decisions come against the backdrop of fresh data from the National Bureau of Statistics (NBS), which showed that Nigeria’s inflation rate eased to 20.12 percent in August 2025, down from 21.88 percent in July.

Cardoso noted that while inflation remains elevated, recent declines suggest that previous rounds of monetary tightening are beginning to yield results. He stressed that the new measures would consolidate these gains without stifling economic growth.

According to the NBS, Nigeria’s economy grew by 4.23 percent in real terms in the second quarter of 2025, driven by strong performance in both oil and non-oil sectors. External reserves have also climbed close to $42 billion, providing additional buffers for monetary stability.

Analysts’ Reactions
Analysts have called on the CBN to adopt more flexible monetary policies that will stimulate credit flow into the economy, especially for small and medium enterprises (SMEs) and critical sectors.

Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), in a statement, urged the CBN to “calibrate CRR and MPR downward as inflation moderates to create a more enabling credit environment. Complement monetary tightening with supply-side measures to address structural inflation drivers.”

He stressed that while the CBN’s tight monetary posture aims to curb inflation, it has inadvertently limited access to affordable credit for businesses and households.

FG Allots N3.05 Billion in September 2025 FGN Savings Bonds

The Federal Government, through the Debt Management Office (DMO), has announced the successful allotment of the September 2025 FGN Savings Bonds, totaling N3.05 billion across the two-year and three-year tenors.

According to data published on the DMO’s website, the bonds opened for subscription on Monday, September 1, 2025, and closed on Friday, September 5, 2025, with settlement scheduled for September 10, 2025.

Coupon Payments

The DMO stated that coupon (interest) payments will be made quarterly—March 10, June 10, September 10, and December 10— directly to investors.

Allotments

Two-Year FGN Savings Bond (Due September 2027):

Interest rate: 15.541% per annum

Amount raised: N631.762 million

Subscriptions: 793 successful investors

Three-Year FGN Savings Bond (Due September 2028):

Interest rate: 16.541% per annum

Amount raised: N2.416 billion

Subscriptions: 1,246 successful investors

Comparison with August 2025 Auction

The September allotment was lower than the N3.3 billion recorded in August 2025.

In August, the government raised N573.31 million from the 2-year bond (maturing August 2027) and N2.74 billion from the 3-year bond (due August 2028).

The auction attracted 2,166 successful investors (892 for the 2-year and 1,274 for the 3-year).

Coupon rates stood at 14.401% for the 2-year bond and 15.401% for the 3-year bond.

Key Information for Investors

Bonds were issued at N1,000 per unit, with a minimum subscription of N5,000 and multiples of N1,000 thereafter, up to a maximum of N50 million.

Introduced in 2017, the FGN Savings Bond programme was designed to:

Deepen the domestic bond market.

Promote financial inclusion.

Provide retail investors access to secure, low-risk government securities.

Regulatory Recognition

The FGN Savings Bond:

Qualifies as an approved investment under the Trustee Investment Act.

Is recognized as a government security under CITA and PITA, making it eligible for tax exemption by pension funds and other institutional investors.

Is listed on the Nigerian Exchange Limited (NGX), allowing secondary market trading and enhancing liquidity.

Qualifies as a liquid asset for banks’ liquidity ratio calculations.

Over the years, the FGN Savings Bond has gained popularity among Nigerians seeking safe and predictable investment opportunities.

Executive Summary

The Central Bank of Nigeria’s Monetary Policy Committee (MPC) meets again on September 22–23, 2025. With inflation easing for four consecutive months, reserves at a 44-month high, exchange rates stabilizing, and credit to the private sector softening under tight financial conditions, the case for a calibrated rate cut is compelling. A 100 basis point reduction in the Monetary Policy Rate (MPR) from 27.50% to 26.50%, would balance the objectives of supporting growth, preserving disinflation momentum, and maintaining investor confidence.

This paper argues that the MPC has entered a window of opportunity to begin a cautious policy pivot. Nigeria’s macroeconomic landscape has shifted in meaningful ways: inflation pressures are moderating, the exchange rate is more stable, and foreign reserves are stronger. At the same time, domestic credit conditions are tightening to the point of constraining businesses. A measured rate cut would therefore be both timely and justified.

1.  Disinflation Is Gaining Traction

1.1  Headline Inflation Trend

Nigeria’s headline inflation has steadily declined:

• April 2025: 97%

• May 2025: 41%

• June 2025: 22%

• July 2025: 88% (fourth consecutive monthly decline)

This disinflation trend is significant because it suggests that earlier policy tightening is working. Inflation has dropped by more than 11 percentage points year-on-year from 33.40% in July 2024. This is not a small achievement, it represents a rare period of consistent price moderation in Nigeria’s recent economic history.

1.2  Why This Matters

Disinflation is important because it provides breathing room for businesses and households. For companies, lower inflation means reduced costs for inputs, easier planning for budgets, and better predictability for investment decisions. For households, it means improved purchasing power, particularly for essential goods like food and energy. Sustained disinflation also strengthens consumer confidence, which in turn supports aggregate demand.

1.3  Real Interest Rate Dynamics

With MPR at 27.50%, the ex-post real policy rate is +5.6%, one of the highest among frontier and emerging markets. Real rates this high can suppress productive investment because borrowing becomes excessively expensive. Even after a 100 bps cut, Nigeria would maintain one of the tightest monetary stances in Africa, ensuring that inflation expectations remain anchored.

2.  External Buffers Are Stronger

2.1  Reserves at Multi-Year Highs

One of the major constraints on monetary easing in the past was the fragility of external buffers. That picture has changed dramatically in recent months:

• Foreign reserves have risen above $41 billion, the highest level in nearly four

• This rise has been supported by steady oil receipts, improved remittance inflows, and stronger capital inflows.

Higher reserves matter because they provide the CBN with ammunition to intervene in the FX market if pressures resurface. They also boost investor confidence, signaling that the country has the financial strength to manage external shocks.

2.2  Exchange Rate Stability

The naira has held steady in the official NFEM market around ₦1,526 – ₦1,533 per USD into early September, compared to periods of heightened volatility earlier in 2025. Exchange rate stability reduces the risk of imported inflation and creates a more predictable environment for businesses engaged in international trade.

2.3  Implications for Policy

These developments mean that the external position is sufficiently resilient to absorb a cautious easing of monetary policy. Cutting rates modestly will not necessarily weaken the naira or trigger destabilizing capital outflows, especially given the recent sovereign rating upgrade and positive investor sentiment.

3.  Domestic Activity and Credit Dynamics

3.1  Stronger Business Activity

Economic activity is showing signs of revival. The August private-sector Purchasing Managers’ Index (PMI) crossed 54, with new orders at a 19-month high. This is a leading indicator of economic expansion.

What is the PMI?

The PMI is a survey-based economic indicator that captures the health of the business environment. It asks purchasing managers about new orders, output, employment, supplier delivery times, and inventories. A PMI reading:

• Above 50 → signals expansion in business

• Below 50 → signals

Nigeria’s PMI has been consistently above 50 since April 2025, showing that businesses are expanding. The upward trend — from 50.5 in April to 54.2 in August — suggests growing confidence in demand and a strengthening recovery.

Why the PMI Matters

PMI is widely regarded as a leading indicator. It provides an early glimpse into how the economy is performing before official GDP data becomes available. Policymakers and investors track it closely because it reflects real-time business sentiment.

In Nigeria’s case, the recent PMI readings suggest:

• Improving domestic demand, as firms report stronger new

• Rising employment potential, as businesses prepare to expand

• Confidence in price stability, as inflation pressures ease, allowing firms to plan

3.2  Tight Credit Conditions

Despite stronger PMI readings, the credit environment remains tight:

• Bank lending to the private sector has softened in recent

• High nominal interest rates and elevated cash reserve requirements (CRR at 50%) have constrained banks’ ability to extend credit.

• Many SMEs face prohibitively high borrowing costs, which stifles expansion and job

A 100 bps reduction in the MPR would not completely solve this problem, but it would help ease conditions. It would also send a clear signal to lenders that monetary policy is beginning to normalize in response to improved fundamentals.

4.  Policy Continuity and Market Confidence

4.1  MPC Forward Guidance

The July MPC decision to hold the MPR at 27.50% was framed as conditional on evidence of sustained disinflation. That condition has now been met with the July CPI print, giving the MPC room to adjust policy.

4.2  External Validation

The credibility of Nigeria’s macroeconomic framework has been reinforced by external validation:

• Moody’s upgraded Nigeria’s sovereign rating to B3 in May 2025, citing improved fiscal discipline and stronger external balance.

• International market participants are increasingly acknowledging Nigeria’s improved reserve position and FX market management.

4.3  Investor Sentiment

Global investors typically interpret a measured rate cut in the context of strong fundamentals as a sign of confidence rather than weakness. By communicating clearly that easing is

conditional and reversible, the MPC can reassure investors while supporting domestic growth.

5.  Risks and Mitigation

5.1  Food Inflation Pressures

Food inflation remains vulnerable to supply shocks, insecurity, and weather patterns. However, these are largely structural rather than monetary in nature. Monetary tightening alone cannot resolve these issues. Instead, targeted government policies on agriculture and security are required. The CBN can manage short-term liquidity risks through Open Market Operations and by maintaining a high CRR.

5.2  Global Risks

Global risks such as dollar strength, shifting oil prices, or tightening by the U.S. Federal Reserve may put pressure on emerging market currencies. In such a scenario, the CBN’s asymmetric corridor (+500/-100 bps) and other liquidity tools provide room for quick corrective action.

5.3  Communication Strategy

A critical part of risk management is communication. The CBN must emphasize that any easing will be data-dependent. Should inflationary or FX pressures re-emerge, the MPC retains the tools and willingness to reverse course.

6.  Why a 100 bps Cut — and Not More or Less?

A 100 basis point cut strikes the right balance for several reasons:

• Cutting less (e.g., 25–50 bps) may not meaningfully ease credit conditions or send a strong enough signal of policy recalibration.

• Cutting more (e.g., 200 bps) could risk being interpreted as premature or overly aggressive, especially given residual risks around food inflation and global financial

At 26.50%, Nigeria’s policy rate would remain one of the highest in Africa, firmly positive in real terms, and still restrictive enough to sustain disinflation.

7.  Broader Implications for the Economy

7.1  Support for SMEs and Manufacturing

Small and medium enterprises (SMEs) are the backbone of Nigeria’s economy, contributing significantly to employment. By modestly reducing borrowing costs, the CBN would help SMEs secure working capital loans, expand operations, and create jobs.

7.2  Improved Consumer Sentiment

Lower inflation combined with slightly lower interest rates will support consumer spending. When households feel more confident about prices and job stability, they are more likely to spend, further driving economic recovery.

7.3  Fiscal-Monetary Coordination

A rate cut would also align with ongoing fiscal efforts to stimulate growth through infrastructure spending and targeted subsidies. This coordination between monetary and fiscal policy strengthens the overall policy mix.

Conclusion: A Case for a Measured Cut

A 100 bps rate cut to 26.50% strikes the right balance. It preserves Nigeria’s positive real rates, acknowledges progress on inflation and FX stability, and provides targeted relief to businesses struggling under high borrowing costs. By pairing this move with continued tight liquidity management, the CBN can reinforce its credibility while supporting sustainable growth.

The September MPC meeting presents a timely opportunity for the Central Bank to pivot cautiously but decisively, towards a more balanced monetary stance.

This article is intended for Medium and corporate blog audiences, blending technical rigor with accessible explanations to help readers understand the rationale behind a potential MPC rate cut.

The Central Bank of Nigeria (CBN) is set to roll out fresh liquidity control measures through Open Market Operations (OMO) to absorb an estimated N784 billion inflows expected to hit the banking system this week.

A breakdown of the inflows shows that OMO maturities of N459.60 billion will enter the system today, while Nigerian Treasury Bill (NTB) maturities of N324.41 billion are due on Thursday. Banking system liquidity opened at N275.9 billion on September 1, 2025, up 10.4% from N249.8 billion on August 25, according to CBN data.

OMO as a Monetary Tool

OMO is one of the apex bank’s key instruments for regulating money supply in the financial system. By issuing OMO bills, the CBN borrows from banks and investors in exchange for short-term securities, thereby reducing excess liquidity and helping to ease inflationary pressures.

A Bank noted that the N480 billion NTB auction scheduled for Wednesday should further support liquidity mop-up. In the FGN bond market, yields are expected to moderate on the back of strong demand for newly issued on-the-run securities.

Recent Liquidity Trends

Last week, banking system liquidity rebounded to N1.40 trillion, reversing from a deficit of N609.43 billion in the previous week. This was supported by FAAC disbursements and OMO maturities of N758 billion, which outweighed the CBN’s liquidity absorption of N1.19 trillion through OMO sales.

As a result, interbank rates eased:

Open Repo Rate (OPR): down 240bps to 26.50%

Overnight (OVN): down 220bps to 26.95%

In the T-bills secondary market, trading was largely bearish. Average yield across the curve rose 23bps w/w to 22.18%, driven by NTBs where average yields expanded 50bps w/w to 18.88%. OMO bills, however, recorded a marginal decline, with average yields easing 3bps to 25.49%.

Rising OMO Sales

The CBN’s liquidity mop-up via OMO sales has surged by 79.2% year-on-year, supporting naira stability and curbing inflationary pressures.

Between January and August 22, 2025, the apex bank withdrew N13.35 trillion from the financial system, compared to N7.45 trillion in the same period of 2024. This represents a significant tightening push under Governor Olayemi Cardoso, especially compared with 2022, when OMO sales in the first eight months stood at just N710 billion.

Nigeria’s headline inflation has eased for the fourth consecutive month—from 22.22% in June to 21.88% in July 2025—underscoring the traction of the CBN’s disinflation drive.

Expert Insights

An economist opines that the CBN has deployed OMO as a central tool for liquidity management and price stability. He added that OMO has been strategically used to attract Foreign Portfolio Investments (FPIs), which has helped strengthen Naira stability, reduce money supply, and bolster disinflation.

“Collectively, these outcomes have bolstered investor confidence and reinforced Nigeria’s appeal as an investment destination,” he stated.

Another analyst highlighted that total OMO sales reached N13.5 trillion in 2024, a massive jump from N723 billion in 2023. Notably, during a single auction on November 11, 2024, the CBN

sold over N1.4 trillion in 365-day OMO bills, nearly double the entire sales volume of the previous year.

Outlook

One of the key drivers of the aggressive OMO issuances is the need to attract foreign portfolio inflows and strengthen FX liquidity. Elevated OMO yields, which peaked at 24.4% in September 2024, created favorable conditions for carry trades relative to U.S. Treasury yields.

According to a Bank, upward pressure on yields is expected in the near term as liquidity conditions tighten further with new OMO issuances.

The Debt Management Office (DMO) has announced the successful completion of its Federal Government of Nigeria (FGN) bond auction, with a total of N185.9 billion allotted across two re-opened bond offerings.

The auction, held on July 28, 2025, featured the reopening of two previously issued FGN bonds:

• N20 billion for the 19.30% FGN APR 2029 bond (five-year tenor).

• N60 billion for the 17.95% FGN JUN 2032 bond (seven-year maturity).

Settlement is scheduled for July 30, 2025.

Auction Performance

According to data released by the DMO, subscriptions amounted to N39.08 billion for the 5-Year APR 2029 bond and N261.60 billion for the 7-Year JUN 2032 bond.

Out of these bids, the DMO allotted N13.43 billion for the APR 2029 bond and N172.50 billion for the JUN 2032 bond, totaling N185.93 billion, well above the initial offer size.

While the bonds retained their original coupon rates of 19.30% and 17.95%, they were allotted at marginal rates of 15.69% (5-Year bond) and 15.90% (7-Year bond). Analysts note this reflects a decline in yield expectations, suggesting investors anticipate easing inflation or a stable monetary policy outlook.

The reopening attracted 149 bids—40 for the 2029 maturity and 109 for the 2032 maturity. Of these, 74 bids were successful (15 for the 2029 bond, 59 for the 2032 bond).

Comparison with June 2025 Auction

In June 2025, the total allotment was N100 billion, lower than July’s results.

• The 5-Year APR 2029 bond (coupon: 19.30%, maturity: April 17, 2029) attracted 30 bids worth N41.69 billion, but only two bids were successful, with an allotment of N1.05 billion.

• The 7-Year JUN 2032 bond (coupon: 17.95%, maturity: June 25, 2032) attracted 209 bids totaling N561.17 billion. Out of these, 41 bids were accepted, with an allotment of N98.95 billion.

Regulatory Framework

The bond issuance was carried out under the Debt Management Office (Establishment) Act, 2003 and the Local Loans (Registered Stock and Securities) Act, CAP. L17, Laws of the Federation of Nigeria 2004.

The marginal rates for successful bids were:

• 17.75% for the 19.30% FGN APR 2029 (5-Year Reopening).

• 17.95% for the 17.95% FGN JUN 2032 (New, 7-Year).

Investor Information

• Each bond unit is priced at N1,000, with a minimum subscription of N50,001,000. Additional subscriptions must be in multiples of N1,000.

• Though coupon rates are fixed, successful bidders pay a price determined by yield-to-maturity that clears the offered volume, plus accrued interest.

• Interest is payable semi-annually, ensuring regular income to bondholders.

• Principal repayment will be made in full at maturity via bullet repayment.

August 25, 2025 | Economy, GDP, Spotlight

Nigeria’s economy is projected to post stronger growth in Q2 2025, with analysts forecasting real GDP expansion between 3.2% and 3.9%.

This outlook would surpass both the 3.13% growth recorded in Q1 2025 and the performance in the same quarter of 2024, reflecting improved macroeconomic stability and rising non-oil output.

The optimism is supported by the recent GDP rebasing, relative exchange rate stability, and expansion across financial services, telecommunications, and industry.

The National Bureau of Statistics (NBS) is expected to release the official GDP report later this month.

Expert Projections

Experts forecast growth of 3.5%–3.7%, noting that the GDP rebasing has sharpened visibility into sectoral performance. The Purchasing Managers’ Index (PMI) averaged 52.2 points in Q2, up from 51.3 in Q1 2025 and 48.0 in Q2 2024, signaling stronger business activity.

“The Nigerian economy appears well positioned to record stronger growth in Q2 2025, outpacing both Q1 2025 and the corresponding period of 2024,

The projects growth between 3.2% and 3.9%, led by a robust non-oil sector expected to expand by 4.1%–4.6%, while the oil sector is projected to post a modest 2.0%–2.6% gain.

Oil sector performance remains subdued, with crude output steady at 1.48 mbpd in Q2 (vs. 1.47 mbpd in Q1) and weaker oil prices averaging $68.70/barrel compared to $73.66 in Q1. Analysts attribute this to reduced global demand following the so-called “Trump tariff effect.”

The non-oil economy, however, continues to gain traction.

Services remain the primary driver, boosted by bank recapitalisation in finance & insurance.

Telecommunications benefit from tariff liberalisation.

Industry is expected to edge up to 3.6% growth in Q2 from 3.4% in Q1, helped by easing inflation and FX stability.

Agriculture is likely to underperform, growing below its long-term 3% average due to persistent insecurity in key food-producing states such as Benue and Plateau.

They believe macroeconomic stability is central to the positive outlook.

“Considering the moderating inflation, stable currency, and increasing foreign reserves, GDP is expected to have grown in Q2 2025,” he said.

Key Drivers of Expected GDP Growth in Q2 2025

GDP rebasing: Enhances visibility of fast-growing sectors, particularly services and telecoms.

Macro stability: Inflation is easing, FX volatility has moderated, and reserves are improving.

Business activity: PMI of 52.2 reflects stronger private-sector output.

Non-oil momentum: Services, telecoms, and industry continue to expand, offsetting oil sector weakness.

The latest inflation report from the National Bureau of Statistics (NBS) shows that Nigeria’s headline inflation eased to 21.88% in July 2025, down slightly from 22.22% in June. This represents a significant 11.52 percentage-point decline from the 33.40% recorded in July 2024, partly reflecting the rebasing of the Consumer Price Index to November 2009 = 100.

On a month-on-month basis, however, inflation accelerated to 1.99% in July, up from 1.68% in June, signalling that while the annual rate has moderated, price pressures remain elevated at the consumer level. The 12-month average inflation rate fell to 25.65%, compared to 30.76% over the same period in 2024.

Urban vs Rural Dynamics

• Urban inflation slowed to 22.01% year-on-year (July 2025), from 35.77% a year earlier, with the monthly reading declining to 1.86% (vs. 2.11% in June). The urban 12-month average stood at 27.04%, also down from 32.89% in 2024.
• Rural inflation printed at 21.08% year-on-year, down from 31.26% in July 2024. However, rural price pressures were more acute on a monthly basis, with inflation rising sharply to 2.30% in July, from just 0.63% in June. The 12-month average rural inflation eased to 23.84%, compared to 28.86% in July 2024.

Food Prices — Still the Key Driver

Food inflation, the most sensitive component to household welfare, eased substantially to 22.74% year-on-year in July, compared to 39.53% in July 2024. Month-on-month, food inflation moderated slightly to 3.12% from 3.25% in June.
According to the NBS, the downward trend was supported by softer prices for vegetable oil, white beans, local rice, maize flour, guinea corn, wheat flour, and millet. The 12-month average food inflation dropped to 26.97%, from 36.36% in the prior year.

Core Inflation — Energy and Imported Pressures Ease

Core inflation, which strips out volatile agricultural and energy prices, slowed to 21.33% year-on-year in July, compared to 27.47% in July 2024. On a monthly basis, core inflation fell markedly to 0.97% in July, down from 2.46% in June. The 12-month average core inflation eased marginally to 23.63%, from 24.65% a year earlier.

Outlook and Policy Considerations

The data suggests that improved domestic food supply, relative exchange rate stability, and moderation in energy costs are beginning to filter through to consumer prices. Analysts note that the ongoing harvest season for staples such as maize, yam, and cassava has eased market shortages and provided some relief to households.

That said, the persistence of elevated month-on-month inflation underscores the fact that underlying cost pressures remain entrenched. For policymakers, this means that while the disinflation trend is welcome, monetary and fiscal authorities must remain cautious and proactive.

• For the Central Bank of Nigeria (CBN), the challenge is to balance price stability with credit availability. While maintaining a restrictive stance through the Monetary Policy Rate (MPR) is necessary, complementary tools such as targeted credit interventions to the agricultural and energy sectors can help ease supply-side constraints.
• On the fiscal side, the government must address structural bottlenecks, particularly in logistics, power supply, and insecurity in food-producing regions, which continue to fuel cost-push inflation.
• Most importantly, anchoring inflation expectations through credible policy signaling will be key to consolidating the downward trend in headline inflation.

In summary, Nigeria’s inflationary environment is showing signs of improvement, but sustained progress will require a careful blend of monetary discipline, fiscal reforms, and structural interventions to secure lasting price stability.

Abstract

Recent macroeconomic data in Nigeria reveal a decoupling between headline inflation, which shows signs of moderation, and food inflation, which remains elevated. This divergence presents a critical challenge for monetary policymakers and calls for a nuanced understanding of inflation drivers in Nigeria. While monetary tightening by the Central Bank of Nigeria (CBN) has contributed to the decline in headline inflation, food inflation persists due to structural inefficiencies, supply chain disruptions, and cost-push pressures. This paper investigates the factors behind these diverging inflation trends and provides a forward-looking projection of the next Monetary Policy Committee (MPC) decisions with respect to the Monetary Policy Rate (MPR), asymmetric corridor, Cash Reserve Ratio (CRR), and Liquidity Ratio (LR).

1. Introduction

Inflation is a central concern for emerging market economies, especially where price instability directly impacts real income, food security, and macroeconomic confidence. In Nigeria, inflationary dynamics have been particularly complex. While headline inflation declined slightly to 22.22% in June 2025, food inflation remains alarmingly high, well above 30%, threatening social stability and economic progress.

This paper seeks to examine the reasons behind this dichotomy and assess how the Central Bank of Nigeria (CBN) is likely to respond in its next Monetary Policy Committee (MPC) meeting. The central question is: why is headline inflation falling while food inflation continues to rise? And what are the implications for monetary policy?

2. Inflation in Nigeria: Disaggregating the Indicators

2.1 Headline Inflation

Headline inflation measures the general change in the price level of all goods and services in an economy. It includes both volatile components (like food and energy) and core components (like services, rent, education, etc.). As a broad measure, it serves as the main indicator of inflation trends.

2.2 Food Inflation

Food inflation, a subcomponent of the Consumer Price Index (CPI), captures changes in the price of food items such as cereals, meat, oils, vegetables, dairy, and beverages. In Nigeria, food accounts for over 50% of the CPI basket, making it both a key driver and a lagging influence on headline inflation.

2.3 Recent Trends

• Headline Inflation (June 2025): 22.22%
• Food Inflation (June 2025): ~30–33%
• Core Inflation: Significantly lower than food inflation, due to reduced imported inflation and tight monetary conditions.

The data indicates that non-food components are decelerating, largely due to tighter liquidity, but food-related costs remain resistant to downward pressures.

3. Why Is Headline Inflation Declining?

3.1. Aggressive Monetary Tightening by the CBN

The Central Bank has pursued one of the most aggressive tightening cycles in its history. Since 2023, the Monetary Policy Rate (MPR) has been raised multiple times, reaching 27.50% as of the last MPC. In parallel, the Cash Reserve Ratio (CRR) has been raised to 50%, and the asymmetric corridor adjusted to +500/-100 basis points. These tools have:

• Curbed excessive liquidity in the financial system.
• Increased the cost of borrowing, reducing credit-fueled demand.
• Helped anchor inflation expectations.
• Encouraged foreign portfolio inflows that supported exchange rate stability.

3.2. Stabilization of the Exchange Rate

The foreign exchange market has experienced partial stabilization due to:

• Improved FX supply from autonomous sources.
• Reduction in CBN backlog obligations.
• Diaspora remittances.
• Slower speculative demand for USD.

The relative stability in the naira-dollar exchange rate has reduced the imported inflation pass-through, especially for non-food imports like electronics, vehicles, and raw materials.

3.3. Base Effects

High inflation in the base year (2024) due to fuel subsidy removal, exchange rate unification, and fiscal reforms means that year-on-year inflation rates now appear to moderate even if prices remain elevated.

4. Why Is Food Inflation Still Rising?

4.1. Structural Insecurity in Food-Producing Regions

A key contributor to rising food prices is rural insecurity, especially in the North-East, North-West, and parts of the Middle Belt. Farmer-herder clashes, banditry, and kidnapping have forced many farmers to abandon agricultural production, reducing food output and increasing scarcity.

4.2. High Agricultural Input Costs

Despite FX rate stability, fertilizers, herbicides, pesticides, and farming equipment remain costly due to:

• Global supply chain disruptions.
• High import dependency.
• Transportation bottlenecks.

For instance, a 50kg bag of fertilizer now costs over ₦45,000, up from ₦18,000 two years ago. This raises the cost per hectare of production, which is passed on to consumers.

4.3. High Transportation and Logistics Costs

Fuel prices, driven by deregulated PMS pricing, now exceed ₦800–₦1,000 per litre in many parts of Nigeria. This disproportionately affects the food sector, as perishable goods require quick and safe transportation, often across long distances with poor road infrastructure.

4.4. Lean Season and Climate Challenges

From May to August, Nigeria enters the lean season, when stocks from the previous harvest are depleted and new crops are not yet ready. Additionally, irregular rainfall and climate-related flooding have damaged yields, especially in rice, maize, and vegetable farming.

4.5. Weak Storage and Distribution Systems

Post-harvest losses in Nigeria are estimated to exceed 30% due to poor warehousing, lack of cold chains, and inadequate market infrastructure. This exacerbates the mismatch between supply and demand, especially in urban areas.

5. MPC Decision in Hindsight: A Strategic Pause Amid Persistent Inflation

Following the publication of this analysis, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) convened and resolved to maintain all existing monetary parameters. This decision confirmed the forecasted trajectory, and in hindsight, reflects a calculated move to observe the lagging effects of aggressive monetary tightening already undertaken.

• The MPC held the Monetary Policy Rate (MPR) steady at 27.50%, retained the Cash Reserve Ratio (CRR) at 50%, maintained the asymmetric corridor at +500/-100 basis points, and left the Liquidity Ratio unchanged at 30%.
• This unanimous hold signals a pause-and-assess stance, which carries several implications for the broader economy.

• 5.1. Monetary Policy Rate (MPR) Held at 27.50%

  • By leaving the MPR unchanged, the CBN has signaled that it is confident in the disinflationary trend of headline inflation, but remains cautious about overtightening, especially given weak real sector growth and persistently high lending rates. The MPC appears to be allowing time for the effects of earlier hikes—cumulatively over 750 basis points since 2023—to filter through the economy.
  • Implication: The hold provides relief to interest-sensitive sectors such as manufacturing and small businesses, preventing further contraction in credit availability. However, it also implies that inflation, especially food-driven, will continue to be influenced more by non-monetary variables.

• 5.2. Asymmetric Corridor Retained at +500/-100bps

  • This wide corridor remains a tool for tight liquidity management without a headline rate hike. It allows the CBN to discourage frequent borrowing at the Standing Lending Facility while absorbing liquidity at a steep discount via the Standing Deposit Facility.
  • Implication:This helps sterilize excess liquidity in the banking system subtly while avoiding shocks to investor sentiment. It reinforces a tight stance while keeping monetary operations flexible.

• 5.3. Cash Reserve Ratio (CRR) Maintained at 50%

  • Despite calls from the banking industry to reduce the CRR burden, the CBN retained thevery high CRR of 50%, continuing its policy of aggressive liquidity sterilization through mandatory reserves.
  • Implication:This decision reflects the CBN’s continued focus on inflation containment, even at the expense of bank profitability and private sector credit expansion. Banks will likely remain cautious in lending, particularly to high-risk sectors.

• 5.4. Liquidity Ratio Maintained at 30%

  • This prudential ratio, which ensures banks maintain a buffer of liquid assets, was kept unchanged. Given the already constrained liquidity landscape, any tightening here would have created unnecessary strain.
  • Implication:The stable liquidity ratio ensures that systemic liquidity remains adequate, especially in the face of heightened CRR constraints and volatile capital flows.

6. Broader Policy Implications

The Central Bank of Nigeria’s decision to maintain all key monetary policy tools, MPR at 27.50%, CRR at 50%, asymmetric corridor at +500/-100bps, and liquidity ratio at 30%, is a clear signal that the apex bank believes its current level of monetary tightening is adequate for now. However, the continued rise in food inflation suggests that the scope of monetary policy alone is insufficient to achieve full price stability.

This reinforces a fundamental truth: Nigeria’s inflation problem is now largely structural, and correcting it requires a multi-agency, cross-sectoral policy response. While monetary tools are effective in managing exchange rate volatility, aggregate demand, and speculative pressures, they are ill-suited for resolving issues such as insecurity in farming regions, inadequate rural infrastructure, and inefficiencies in food distribution.

The current environment calls for a shift in the burden of adjustment, from monetary to fiscal and sectoral reforms. The implications are as follows:

6.1. Rebalancing the Inflation Fight Toward Structural Solutions

Monetary policy has reached a point of diminishing returns. Further tightening would risk damaging credit creation and investment, particularly among SMEs. Instead, greater effort must now go into addressing the non-monetary drivers of inflation, such as:

• Rural insecurity,
• Post-harvest losses,
• Fuel-driven transport costs,
• Poor input affordability and availability.

These areas lie within the domain of fiscal policy, agricultural reform, and public investment.

6.2. Fiscal Coordination Must Intensify

The effectiveness of the CBN’s tight stance depends on whether fiscal authorities can intervene directly in the food supply chain. Coordinated investments in agricultural extension services, rural roads, irrigation, and market systems will relieve supply-side constraints that are immune to interest rate changes.

Without such fiscal support, the pressure to overextend monetary tools will persist, with negative consequences for credit, investment, and employment.

6.3. De-risking the Agricultural Sector

A critical implication of rising food inflation is the need to de-risk agriculture, both for producers and lenders. The government must support:

• Agricultural insurance schemes,
• Expansion of the Anchor Borrowers’ Programme in a more transparent and scalable form,
• Public-private partnerships to deliver mechanization and storage infrastructure.

By lowering risk, such measures can encourage private capital inflows into the sector and improve productivity.

6.4. Macroprudential Trade-offs for the Banking Sector

The sustained high CRR of 50% continues to constrain banking sector liquidity, with implications for credit to the real economy. While it supports disinflation, it also:

• Reduces net interest margins,
• Limits banks’ ability to finance SMEs and agribusinesses,
• May lead to informal lending channels at higher costs.

A tiered or targeted liquidity framework that incentivizes lending to priority sectors could improve the transmission of monetary policy without undermining macro stability.

6.5. Restoring Public Confidence and Market Anchoring

Finally, maintaining current rates signals policy consistency and discipline, which is vital for anchoring inflation expectations. However, sustained inflation, especially food inflation, can quickly erode public confidence if not addressed through visible improvements in supply and affordability.

This implies that the credibility of the CBN and broader macroeconomic management now hinges less on rate changes and more on inter-agency policy coherence

7. Conclusion

Nigeria’s current inflation profile reflects a classic case of demand-management tools being used to fight a supply-side problem. While tight monetary policy has contributed to a moderation in headline inflation, it has limited effect on food prices driven by security, logistics, and productivity challenges.

The next MPC is likely to hold the current monetary stance steady, while encouraging fiscal actors to address food supply challenges more directly. Until structural constraints are tackled, food inflation will remain a persistent threat to macroeconomic stability and human development.

8. Recommendations

High Food Inflation
Establish agro-security corridors and food transport protection systems to ensure safe access to farmlands and secure distribution of produce across the country.

Inadequate Input Access
Reintroduce targeted subsidies for critical agricultural inputs such as fertilizers, seeds, and mechanization services. Support domestic manufacturing of inputs to reduce dependence on imports and foreign exchange volatility.

Post-Harvest Losses
Invest in cold storage infrastructure, grain silos, and regional logistics hubs to minimize spoilage and improve food preservation from farm to market.

Monetary Policy Effectiveness
Recognize the limitations of interest rate tightening and complement it with fiscal interventions aimed at boosting food production and reducing structural bottlenecks in the supply chain.

CRR Impact on Banks
Consider adopting a tiered Cash Reserve Ratio (CRR) structure that offers relief to small and mid-sized banks, encouraging more credit flow to the real sector without undermining the CBN’s liquidity management objectives.

References

1. Central Bank of Nigeria. (2025).MPC Communiqués and Monetary Policy Series
2. National Bureau of Statistics. (2025).Consumer Price Index Reports (Jan–Jun)
3. World Bank (2024).Nigeria Economic Update: Inflation and Fiscal Reform Edition
4. International Monetary Fund. (2024).Nigeria Article IV Consultation Report
5. Financial Derivatives Company (2025).LBS Monthly Economic Outlook Series

Written By:

Temitayo Gbenro

Head, Retail and SME Business,

SYNC Capital and Advisory Limited

The Central Bank of Nigeria (CBN) has announced the retention of the Monetary Policy Rate (MPR) at 27.5% following the conclusion of its 301st Monetary Policy Committee (MPC) meeting held on Tuesday, July 22, 2025.

Addressing journalists after the meeting, CBN Governor Dr. Olayemi Cardoso stated that the committee’s decision was driven by the need to sustain the disinflationary trend and contain price pressures in the economy.

“The decision was premised on the need to sustain disinflation and sufficiently contain price pressure,” Cardoso explained, noting the committee’s cautious optimism about recent economic indicators.

All 12 MPC members voted unanimously to maintain the MPR at 27.5%, signaling a unified stance among policymakers amid persistent inflationary pressures and exchange rate volatility.

The MPR, which serves as the benchmark interest rate, remains a critical tool in the apex bank’s efforts to rein in inflation, which, although slowing in recent months, is still above the CBN’s target range.

Key decisions from the MPC meeting include:

• Retention of MPR at 27.5%
• Maintenance of the asymmetric corridor around the MPR at +500/-100 basis points
• Retention of Cash Reserve Ratio (CRR) at 50% for Deposit Money Banks and 16% for Merchant Banks
• Maintenance of the Liquidity Ratio at 30%

Governor Cardoso emphasised that the current policy stance would continue to address both existing and emerging inflationary pressures.

“The MPC will continue to undertake rigorous assessments of economic conditions, price developments, and outlook to inform future policy decisions,” he said.

Analysts were divided ahead of the meeting, with some expecting a marginal rate hike to strengthen the naira and others predicting a hold decision due to concerns over sluggish economic growth. The decision to maintain rates reflects the CBN’s focus on balancing inflation control with economic stability as businesses and consumers navigate a challenging macroeconomic environment.

Other potential adjustments to the CRR or Liquidity Ratio were not immediately disclosed at the time of the announcement.

Overall, the unanimous vote underlines the Bank’s commitment to monitoring the effectiveness of current policies before making further adjustments, amid growing concerns about the trajectory of the economy if inflation remains unchecked.

Olalekan Adigun for Nairametrics

Nigeria’s headline inflation rate eased to 22.22% in June 2025, down from 22.97% recorded in May 2025.

This is according to data released by the National Bureau of Statistics (NBS) on Wednesday.

The latest figure represents a 0.75 percentage point decrease, signaling a modest slowdown in the pace of rising consumer prices across the country.