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 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.

The Central Bank of Nigeria (CBN) has announced that its first Monetary Policy Committee (MPC) earlier scheduled for February 17 and 18, 2025, will now hold on Wednesday, February 19 and Thursday, February 20, 2025.

The announcement puts paid to speculation around the date of the 299th meeting, amid delays by the National Bureau of Statistics (NBS) to release the rebased Consumer Price Index (CPI).

With a date now fixed, the attention of economic watchers is focused on the meeting outcomes – on whether there will be a hold or hike in the monetary policy rate (MPR), going by current trends.

The first MPC meeting ought to have been held since January, but was shelved.

During the last meeting for 2024 which was held in November, the Committee raised the Monetary Policy Rate (MPR) for the sixth time by 25 basis points to 27.50%. This was to address rising inflation, which stood at 33.88% as of October 2024.

The asymmetric corridor around the MPR was retained at +500/-100 basis points; Cash Reserve Ratio of Deposit Money Banks at 50% and Merchant Banks at 16%; as well as the Liquidity Ratio at 30%.

But since then, inflation has risen for the fourth straight month, hitting a near 30-year high of 34.8% in December 2024, up from 34.6% in the prior month.

Food inflation, which constitutes over 50% of Nigeria’s inflation basket, moderated to 39.84% in December from 39.93% the previous month.

“The Central Bank is resolute and committed to continuing to fight the war against inflation and there is no going back on that.

Nigeria’s inflation rate hasdroppedfor the first time in several months. According to the latest Consumer Price Index (CPI) report from the National Bureau of Statistics (NBS), inflation fell from 34.8% in December 2024 to 24.5% in January 2025.

Yay! So why did inflation reduce this much?

The National Bureau of Statistics (NBS) is changing how inflation is calculated.

One of the biggest changes has been rebasing the Consumer Price Index (CPI), the NBS tool to track inflation. The NBS has now shifted to using 2024 as the new base year. This means the starting point for measuring price changes has been updated to match today’s economic situation. It’s important because until now, the CPI has been based on data from 2009 when consumer habits and market conditions were quite different.

Another major change with this update is the inflation basket. Previously, the NBS measured inflation based on 740 items, but now that number has jumped to 934 goods and services. This expansion helps paint a complete picture of how prices change across various economic sectors. However, the new method gives less weight to food prices—the biggest driver of inflation—shrinking its share of the inflation basket from 51.8% to 40.1%. This adjustment means that even if food prices continue to rise sharply, their impact on the overall inflation rate will appear smaller.

The NBS also shifted focus towards categories that more accurately represent what people are actually spending on today. For instance, transportation, healthcare, and education have received more attention since these have become more significant parts of household budgets. With more weight placed on these areas, the inflation numbers aim to match everyday Nigerian realities better.

As a result of these changes, the inflation rate is now dropping noticeably. According to the NBS, the updated methodology offers a more transparent and accurate picture of price changes in the economy.

Are prices going down in the market?

Not necessarily. While inflation has slowed, it doesn’t mean market prices will drop significantly. The rebasing of inflation calculations is a shift in measurement, not an indication of falling prices. It aims to reflect current consumer spending more accurately but doesn’t reverse price trends.

For example, even though overall food inflation has declined, staples like Garri, rice, or cooking oil may remain expensive. Prices are influenced by ongoing challenges such as energy costs, transportation, and supply chain disruptions, which continue to drive up expenses.

For most Nigerians, food accounts for a large share of their income—much more than the 40.1% weighting now assigned in the inflation calculation. If food prices go up by 24% but the price of other elements in the CPI basket stays the same, inflation looks tamer, but only on paper. That’s why protecting your purchasing power and making smart financial choices remain essential.

The answer is investing.

When inflation rises, the value of your savings can shrink. But, by investing in assets that tend to perform well over time, like fixed income deposits, stocks, real estate, and other smart investment opportunities, you can protect your savings and grow your wealth.