Nigeria’s Inflation to Drop to 21.79% in July as Naira Stays Stable – Rewane Forecasts Rate Cut

Nigeria’s inflation rate is expected to fall to 21.79% in July, marking the fourth consecutive monthly decline and the lowest level in nearly two years, according to Bismarck Rewane, Managing Director of Financial Derivatives Company (FDC). Speaking at the Lagos Business School breakfast session, Rewane attributed the drop to the naira’s recent appreciation, lower energy costs, and the ongoing harvest season. This continued disinflation follows a period when inflation surged to record highs last year.

The renowned economist noted that the downward trend in consumer prices could pave the way for the Central Bank of Nigeria (CBN) to initiate an easing cycle, potentially cutting the Monetary Policy Rate (MPR) by at least 25 basis points to 27.25% when policymakers meet in September. This move would come after the CBN held rates steady in three consecutive meetings in 2025, following aggressive hikes throughout 2024 to combat stubborn inflation.

However, Rewane cautioned that liquidity pressures could trigger a rebound in inflation. The Federal Account Allocation Committee (FAAC) disbursed N1.82 trillion in June, the highest on record, which could inject excess cash into the economy. Despite this risk, he projects inflation will average 22% in 2025 before easing to 16% in 2026, driven by exchange rate stability, slower money supply growth, and reduced import dependence.

Rewane also forecast that Nigeria’s GDP will grow to 3.36% in Q2 and 3.48% in Q3, up from 3.13% in Q1, signalling a gradual economic recovery despite ongoing hardship for households. He expects oil production to rise to 1.55 million barrels per day in August, while Brent crude prices could ease to $70 per barrel from $73 last month. Lower interest rates, he said, would improve borrowing conditions for businesses, boost SME access to credit, and stimulate investment, though the immediate impact may be modest given the still-high MPR.

On currency stability, Rewane projected the naira would remain within the N1,500–N1,600 per dollar range through year-end, with its misalignment from fair value reduced to 25.15%. The official rate stood at N1,533.5/$, while the parallel market rate was N1,558/$, narrowing the gap to N24.5. He anticipates external reserves will rise to $40 billion in August from $39.27 billion in July, supported by improved forex inflows and oil earnings.

Source: Business day