MPC Holds Interest Rate at 27.5% as CBN Seeks Fiscal Support for Naira Stability
The Central Bank of Nigeria (CBN), at its 300th Monetary Policy Committee (MPC) meeting, opted to retain the benchmark interest rate at 27.5% to curb inflation and maintain macroeconomic stability. The decision aims to anchor expectations amid inflation deceleration and protect against capital outflows. CBN Governor Yemi Cardoso emphasized the need for fiscal support to complement ongoing monetary reforms, especially to boost foreign exchange (FX) inflow and support the naira, which recently strengthened to ₦1,598.72/$1. However, challenges remain, particularly with oil market volatility and weak global demand.
The MPC highlighted persistent inflationary drivers such as high energy costs and FX pressures. Cardoso noted the relative improvement in FX market stability and emphasized the importance of maintaining reforms and boosting non-oil exports like gas. He credited national refineries, including Dangote’s, for reduced fuel imports, and lauded increased gas exports as evidence of naira competitiveness. He also introduced a new initiative — the Non-Resident Bank Verification Number (NRBVN) — to attract $1 billion monthly in diaspora remittances and foster greater participation by non-resident Nigerians.
Stakeholders in the financial sector largely welcomed the decision to maintain the current rate. Analysts like Tolulope Alayande and CPPE CEO Dr. Muda Yusuf warned that tightening monetary policy further could hinder growth and increase borrowing costs. They pointed out that global uncertainty, especially the trade tensions between the U.S. and China, necessitated a cautious approach. They believe that keeping the monetary stance steady provides room to better analyze international trends before the next MPC meeting in July.
Economist Dr. Paul Uzum and Professor Chude Nwude both stressed the risks of a rate cut amid macroeconomic vulnerabilities. Uzum warned that lower rates might lead to capital flight and jeopardize currency gains. Nwude focused on Nigeria’s unproductive economy and the high cost of capital as impediments to local industrial growth. He advocated for a more supportive policy environment to stimulate domestic production and reduce reliance on imports.
Meanwhile, the naira showed signs of recovery in both the official and parallel markets, with improved dollar inflows through the Nigeria Autonomous Foreign Exchange Market (NAFEM), rising to $914 million. Forward contract rates also indicated cautious optimism about the naira’s future. The MPC also retained other key monetary tools: the cash reserve ratio (CRR) at 50% for commercial banks, 16% for merchant banks, and the liquidity ratio at 30%, signaling the CBN’s continued tight stance to stabilize the economy.
Source: The Guardian