The Central Bank of Nigeria (CBN) and its Monetary Policy Committee (MPC) have implemented strategic measures to stabilise the naira and curb inflation, shaping the country’s macroeconomic trajectory.

At the 299th MPC meeting held on February 19 and 20, 2025, the Committee opted to maintain the Monetary Policy Rate (MPR) at 27.5 per cent, underscoring its commitment to balancing inflation control with exchange rate stability.

CBN Governor Olayemi Cardoso, announcing the decision at a press briefing, said:

“The committee was unanimous in its decision to hold all parameters and thus decided as follows: 1. Retain the MPR at 27.50 per cent. 2. Retain the asymmetric corridor around the MPR at +500/-100 basis points. 3. Retain the Cash Reserve Ratio of Deposit Money Banks at 50.00 per cent and Merchant Banks at 16 per cent. 4. Retain the liquidity ratio at 30.00 per cent.”

This decision signals a pause in rate hikes after six consecutive increases in 2024, as the apex bank navigates inflationary pressures, exchange rate volatility, and economic growth concerns.

Sustaining Naira Stability Through FX Market Reforms

A key highlight of CBN’s recent policy actions is the stabilisation of the naira, following a period of sharp depreciation in 2024. The exchange rate convergence between the official and parallel markets has narrowed, reducing arbitrage opportunities and boosting confidence.

As of February 20, 2025, the naira appreciated by 6.95 per cent in the parallel market, trading at N1,510/$, a significant improvement from the N1,640/$ recorded in early January.

Speaking at the MPC briefing, Cardoso said:

“The window, or the differential in rates between the BDCs and the official rate, has come down to maybe less than one per cent.”

The introduction of the Electronic Foreign Exchange Matching System and the Nigerian Foreign Exchange Market FX Code has been instrumental in improving market efficiency and transparency, reducing speculation, and enhancing liquidity.

The Nigeria Employers’ Consultative Association (NECA) praised the FX Code, describing it as a major step toward ethical governance in the forex market. NECA’s Director-General, Adewale-Smatt Oyerinde, noted:

“The introduction of the FX Code is commendable. It enhances transparency and integrity in Nigeria’s foreign exchange market, boosting investor confidence.”

Meanwhile, the CBN’s strategic clearance of a $7bn FX backlog has further strengthened investor confidence and facilitated a more stable FX regime.

Inflation Control: A Path Toward Single Digits

While naira stabilisation is a major win for the CBN, inflation remains a pressing concern. Nigeria’s inflation rate stood at 24.48 per cent in January 2025, following the rebasing of the Consumer Price Index to reflect updated consumption patterns.

Cardoso reaffirmed the CBN’s commitment to reducing inflation, stating:

“Inflation has been too high for too long. Our goal is to bring it down from double digits to single digits in the medium to long term.”

The decision to maintain the MPR at 27.5 per cent is part of a broader tight monetary stance aimed at controlling liquidity and curbing inflationary pressures.

However, financial analysts warn of the impact of high interest rates on businesses. Dr. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), commended the MPC for pausing rate hikes, stating:

“Retaining the rates makes sense to prevent further pressure on businesses and individuals with bank exposures.”

Banking Sector Reforms and Economic Growth

Beyond stabilising the exchange rate and tackling inflation, the CBN is strengthening Nigeria’s banking sector through new capitalisation requirements, set to take effect in March 2026.

Cardoso assured that the banking sector remains resilient despite macroeconomic challenges. However, the MPC emphasised the need for enhanced banking system surveillance in light of ongoing recapitalisation efforts.

The stability in the FX market and tighter monetary policies have started attracting foreign investments. Nigeria successfully re-entered the Eurobond market in late 2024, securing over $9bn in subscriptions, signaling renewed investor confidence.

Additionally, foreign portfolio investment inflows surged to $3.48bn in the first half of 2024, up from $756.1m in the same period of 2023.

Global institutions such as the World Bank and IMF have commended Nigeria’s economic reforms, predicting that stabilising crude oil production and rising non-oil sector contributions will further support growth.

Monetary and Fiscal Policy Coordination: A Key Factor for Stability

A key theme emerging from the latest MPC meeting is the need for stronger coordination between fiscal and monetary policies.

Cardoso stressed:

“We will enhance collaboration with the fiscal sector by increasing the depth and regularity of our interactions to drive economic growth.”

Food inflation remains a major concern, driven by structural weaknesses in agriculture and security challenges in farming regions. The MPC urged the government to intervene by boosting local food production and addressing supply chain disruptions.

Financial analyst Johnson Chukwu, CEO of Cowry Assets Management, warned against policy misalignment, stating:

“The fiscal authorities want to stimulate the economy with aggressive policies, and the monetary authorities must ensure they do not neutralise these efforts.”

Conclusion: A Delicate Balancing Act

The 299th MPC meeting reflects a cautious but strategic approach to economic management. By maintaining interest rates and stabilising forex markets, the CBN is laying the groundwork for long-term financial stability.

For businesses and consumers, the economic outlook remains cautiously optimistic. While borrowing costs remain high, the narrowing gap between official and parallel market exchange rates indicates declining speculative forex demand—a positive sign for market stability.

As Nigeria navigates its economic recovery, the CBN and MPC will play a pivotal role in shaping financial policies that ensure sustainable growth. If these measures are effectively implemented, Nigeria could be on the path to achieving macroeconomic stability and long-term prosperity.