The Central Bank of Nigeria has signaled cautious optimism in the country’s economic trajectory, choosing to hold all key monetary policy rates steady at its May 2025 Monetary Policy Committee meeting. All 12 members of the Committee were present and voted unanimously to maintain the status quo, a move that underscores growing confidence in the early successes of recent reforms.
The Monetary Policy Rate remains at 27.5%, while the asymmetric corridor around the MPR stays unchanged at +500/-100 basis points. The Cash Reserve Ratio is held at 50% for Deposit Money Banks and 16% for Merchant Banks. The Liquidity Ratio is also unchanged at 30%.
This decision comes amid emerging signs of economic recovery. Headline inflation dropped to 23.71% in April, the foreign exchange market has shown signs of stabilization, and Nigeria’s external reserves have rebounded sharply from just $3 billion to over $23 billion. In this context, the MPC chose to stay the course, favoring consistency and consolidation over policy shifts.
Beneath the surface, several key themes shaped the MPC’s thinking.
Several developments informed this decision. First, the macroeconomic environment is showing signs of improvement. The spread between official and parallel exchange rates is narrowing, and the Naira has remained relatively stable despite global financial turbulence – thanks to better FX management and growing investor confidence. The balance of payments has also turned positive, PMS prices have declined, and net reserves have surged. The committee also noted the ease in food inflation, attributing the decline to government efforts to boost local food production and improve security in agricultural zones.
Despite these positive trends, the Committee remains cautious. Structural factors continue to fuel underlying inflation, with electricity tariff increases and persistent forex demand posing risks. In addition, falling global oil prices and uncertainty around U.S. economic policy could dampen oil revenues and dampen Nigeria’s fiscal outlook.
What This Means for the Economy: Stability Over Shock
The decision to hold rates signals a desire for continuity and stability. By anchoring inflation expectations and providing a clear policy path, the CBN aims to support a smoother economic transition and reinforce the credibility of its reform efforts.
Investor sentiment is improving. The stabilization of the FX market, coupled with rising reserves and falling inflation, is helping to position Nigeria as a more attractive and predictable environment for both local and foreign capital. As confidence builds, Nigeria may see stronger capital inflows and renewed growth momentum.
On the external front, a balance of payments surplus, improved gas exports, and a more competitive exchange rate are strengthening Nigeria’s position. If current reforms are sustained, Nigeria could comfortably meet reserve adequacy thresholds and weather global shocks more effectively.
The MPC emphasized the importance of continued FX policy coordination and structural reform. Banks are expected to deepen FX reforms, while fiscal authorities must accelerate diversification through non-oil exports and gas monetization to keep FX inflows robust.
Outlook: Holding Firm, Watching Closely
The Committee reaffirmed its commitment to maintaining price stability, safeguarding the Naira, and ensuring consistent implementation of reform policies. For now, the strategy is one of careful consolidation – avoiding premature easing while reinforcing recent gains.
Markets are likely to respond positively. Fixed income investors will appreciate the stability in yields, and the equity space may benefit from the improving macro-outlook and a more predictable policy environment.