Nigeria Holds Key Rate as FX Gains, Inflation Moderates, and Investor Confidence Grows
In a bid to sustain recent gains in price stability and foreign exchange (FX) market calm, the Central Bank of Nigeria (CBN) opted to retain its benchmark interest rate at 27.5% following its July 2025 Monetary Policy Committee (MPC) meeting. Inflation slowed for the third consecutive month, standing at 22.22% in June, due in part to stable energy prices and reduced forex volatility. Analysts were divided ahead of the meeting, some pushed for rate cuts to stimulate real sector growth, while others called for a steady policy to maintain disinflation momentum. Ultimately, the MPC prioritized inflation control, maintaining other key monetary tools, including the Cash Reserve Ratio and Liquidity Ratio, unchanged.
Analysts from Afrin vest and Meristem Securities welcomed the decision, predicting it would support real sector expansion, FX predictability, and sustained investor confidence. The naira continued to firm up slightly, narrowing the gap between official and black market rates. Simultaneously, improved system liquidity drove down short-term borrowing rates like the Open Buy Back and overnight rates. Presidential Tax Reform Chair Taiwo Oyedele credited ongoing economic reforms under President Tinubu for boosting FX reserves—now at $38.63 billion—and resolving a $7 billion forex backlog, while calling for improved policy coordination to complement monetary gains.
Robust capital inflows have been central to the FX market’s recovery. Foreign portfolio investments surged by over 300% in June, reaching $2.73 billion, their highest level since 2019. This helped ease pressure on the naira and reduced the need for direct CBN intervention. Governor Olayemi Cardoso has emphasized expanding FX sources, especially diaspora remittances and refining the CBN’s willing buyer-willing seller model. Remittances are projected to double as improved liquidity and incentives restore market confidence. Efforts such as licensing more IMTOs and increasing access to dollars for manufacturers are also paying off in reserve stability and exchange rate management.
The macroeconomic outlook is cautiously optimistic. GDP grew 3.13% in Q1 2025, crude oil production improved to 1.5 million barrels per day in June, and inflation is projected to ease further. Import costs are declining amid a strengthening naira, even as Nigeria continues to rely on fuel imports. Analysts anticipate FX liquidity will remain strong, barring external shocks. With inflation moderating, foreign reserves rising, and monetary policy steady, Nigeria appears to be on a stabilizing path. However, experts stress the need for structural reforms and coordinated fiscal policies to ensure the momentum is sustained.
Source: Punch