CBN expected to keep rates steady as MPC decides today

The Central Bank of Nigeria (CBN) is expected to keep the benchmark interest rates steady as the 305th Monetary Policy Committee (MPC) decides today. Several economists and financial market analysts polled by BusinessDay have piled pressure on policymakers to maintain a cautious stance due to geopolitical volatility in the Middle East and global inflation fears. Here are some of their thoughts below:

Here is what economists and financial market analysts polled by BusinessDay are saying.

Hold

Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank

“Nigeria is an oil producer with refining capacity, but the recency of its fuel subsidy and FX reforms suggests that inflation expectations are not well anchored. March inflation accelerated to 4.2 percent month-on-month as fuel price hikes were rapidly transmitted to other CPI components, including services. We now see the CBN keeping its policy rate on hold at 26.5 percent (under review prior); market participants will likely watch closely for any indication of future tightening.”

Moderate tightening

Muda Yusuf, CEO, Centre for the Promotion of Private Enterprise

“The expectations from the forthcoming meeting of the Monetary Policy Committee (MPC) should be framed within the context of evolving domestic macroeconomic conditions, heightened geopolitical uncertainties and emerging fiscal liquidity risks within the Nigerian economy.

“Of particular significance are the geopolitical tensions involving the United States, Israel and Iran, which have triggered renewed volatility in the global energy market. The resultant surge in crude oil prices has already been transmitted into higher domestic energy costs, with profound implications for inflation, production costs, transportation, logistics and overall business operating conditions in Nigeria.

“Additionally, the economy is beginning to witness the early manifestations of election-related liquidity injections ahead of the 2027 electoral cycle. Increased political spending by aspirants, political parties and election management institutions, combined with significantly improved FAAC allocations to subnational governments, presents a material risk to domestic liquidity management and inflation containment.

“The recent engagement by the Central Bank of Nigeria with state governments on the inflationary implications of elevated fiscal injections underscores the growing concern about excess liquidity conditions within the economy. The MPC is therefore likely to assess these developments through the lens of its price stability mandate and inflation-targeting framework.

“Against this backdrop, there is a strong possibility that the MPC may be predisposed towards a moderate tightening of monetary conditions to contain inflation expectations and reinforce monetary policy credibility.

“However, the Centre for the Promotion of Private Enterprise (CPPE) is deeply concerned about the implications of additional monetary tightening for economic growth, private sector investment, industrial productivity and employment generation. The Nigerian economy remains fragile and structurally constrained. Excessively tight monetary conditions could further weaken credit expansion, dampen investor confidence and constrain the recovery momentum within the real sector.

“The CPPE submits that monetary policy management in developing economies requires a more nuanced and context-sensitive approach than what obtains in advanced economies. Nigeria’s development realities — including infrastructure deficits, weak productive capacity, high unemployment and significant financing gaps — necessitate a monetary policy framework that balances price stability objectives with growth-supportive considerations.

“It is also important to recognise that the current inflationary pressures are predominantly cost-push and supply-side in nature. The key inflation drivers are energy costs, exchange rate pass-through, logistics bottlenecks, transportation costs and structural inefficiencies within the production ecosystem. Monetary tightening is typically more effective in addressing demand-pull inflation driven by excess aggregate demand and liquidity expansion. Its effectiveness in dealing with supply-side inflation shocks is considerably more limited.

“Further tightening under the present circumstances risks imposing substantial costs on the productive sector without necessarily delivering proportionate gains in inflation moderation. Higher interest rates would elevate the cost of capital, weaken manufacturing competitiveness, suppress SME expansion, constrain household consumption and slow investment growth at a time when the economy urgently requires productivity-enhancing investments and job creation.

“The CPPE therefore advocates a carefully calibrated and balanced monetary policy stance that preserves macroeconomic stability while avoiding excessive policy tightening capable of undermining growth recovery and private sector resilience. The overarching policy imperative should be to sustain investor confidence, support productive investments, stimulate output growth and strengthen the economy’s supply-side capacity while maintaining vigilance on inflation management.

“In the final analysis, while prevailing inflationary risks may justify a cautious policy posture by the MPC, the CPPE strongly urges the monetary authorities to avoid an over-reliance on monetary orthodoxy in managing what is fundamentally a structurally driven inflation environment. Sustainable disinflation in Nigeria will ultimately depend more on improvements in productivity, energy security, logistics efficiency, exchange rate stability and domestic production capacity than on aggressive monetary tightening alone.”

Hold

Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto & Co

“I think the rates will be held constant. The inflationary pressure threats from the Middle East crisis will moderate plans to ease the monetary policy rate.”

Hold

Tunde Abidoye, head of research at Quest Merchant Bank

“I expect a hold. The balance of indicators suggests the MPC is likely to adopt a more cautious stance in the coming meetings. We are already seeing an uptick in inflationary pressures, partly driven by global developments. Central banks such as the U.S. Federal Reserve and the European Central Bank are holding rates steady amid rising price pressures and geopolitical shocks, particularly from the Middle East. In this context, the MPC is unlikely to ease, as doing so would narrow the interest rate differential with advanced economies like the US.”

Hold

Olufunmilola Adebowale, head of research at Parthian Partners

“The MPC is expected to convene next week, with key deliberations likely to be anchored on the April inflation figures due for release on May 15 and other economic indicators. We expect a further increase in headline inflation on a year-on-year basis, even as monthly inflation moderates.

“The expected easing in monthly price pressures may offer some relief to policymakers following the sharp acceleration recorded in March; however, this is better interpreted as a normalisation after the earlier energy-driven shock rather than a clear disinflationary trend.

“Against this backdrop, we expect the committee to maintain a cautious stance, opting for a wait-and-see approach. Accordingly, the Monetary Policy Rate (MPR) is likely to be retained at 26.5 percent, as the MPC continues to assess evolving inflation dynamics and closely monitor developments in the energy space.”

Hold

Olanrewaju Kazeem, group chief executive officer of Alert Group

“Many factors will drive the direction of the MPC in determining the MPR:

“The slight increase in inflation from 15.1 percent in January to 15.38 percent in April is due to the crisis in the Middle East involving Iran, Israel and the US.

“The outcome and possible resolution of the Middle East crisis will significantly influence economic conditions; most economic variables have been affected by the war, and expectations from the actors will determine the direction of the MPR.

“Generally, interest rates across major global economies appear relatively stagnant, largely due to uncertainty and unpredictability surrounding the outcome of the war.

“The improved FX inflow, stability of the naira and the recent gradual appreciation of the currency could lead to a stable or reduced rate to encourage economic growth while preserving exchange rate stability.

“Farming and production activities have commenced; maintaining stable or lower interest rates could further support increased production and economic growth by making credit more affordable and accessible.

“Excess funds in circulation and the outcome of spending by the three tiers of government, particularly the increased FAAC allocations, are expected to improve liquidity and may contribute to a reduction in interest rates.

“Overall, a cautious wait-and-see approach is expected, where the rate remains unchanged or records a minor reduction to stimulate the economy.”

Hold

Oluwole Crowther, head of research at FMDA

“Central Bank of Nigeria Governor Olayemi Cardoso recently noted in an interview with the Financial Times that rising geopolitical tensions in the Middle East involving the United States, Israel and Iran could influence Nigeria’s interest rate decisions.

“It is important to note that the conflict triggered capital outflows from frontier and emerging markets, particularly across Africa, while also contributing to renewed inflationary pressures globally for two consecutive months. Of the 19 major central banks that have held policy meetings since the conflict escalated, about 14, representing 74 percent, maintained rates, including the U.S. Federal Reserve, Bank of England and the European Central Bank, while only four, representing 21 percent, opted for rate cuts. This clearly suggests that most monetary authorities are currently in a wait-and-see mode.

“In Nigeria, inflation rose to 15.38 percent in March after declining for 11 consecutive months, while early indicators suggest another possible uptick in April. External reserves have also moderated since the conflict began, although the naira has remained relatively stable against the U.S. dollar.

“With election-related spending risks gradually building ahead of the political cycle, I believe the MPC will likely weigh these risks carefully and maintain the Monetary Policy Rate (MPR) at 26.5 percent at next week’s meeting.”

Hold

Ayodele Akinwunmi, chief economist at United Capital

“While the U.S.–Iran conflict has heightened the inflation risk profile in Nigeria and many other countries around the world, the Monetary Policy Committee (MPC)’s toolkit is limited by the fact that these pressures are supply-driven rather than demand-led. Given the stability of the foreign exchange market, a hold decision on the key policy rate is appropriate. Nevertheless, the MPC may adjust the Cash Reserve Requirement (CRR) on Non-TSA on public sector deposits to 85 percent from 75 percent to mop up additional liquidity from the system.”