The Central Bank of Nigeria (CBN) has retained its benchmark interest rate at 27.5 percent, maintaining a firm stance in its monetary tightening cycle as inflation eases but underlying risks persist.
CBN Governor Olayemi Cardoso announced the decision on Tuesday at the end of the Monetary Policy Committee’s (MPC) 301st meeting in Abuja.
EDITOR’S PICKS
This is the third time the committee has chosen to keep the Monetary Policy Rate (MPR) unchanged in 2025, having done so previously in February and May.
The retention of the rate, along with other monetary parameters, signals the CBN’s intent to stay the course on disinflation and macroeconomic stability.
EKO HOT BLOG answers all questions you might have in this explainer.
What is the MPR, and why is it important?
The Monetary Policy Rate is the interest rate at which the central bank lends to commercial banks. It serves as a baseline for other interest rates across the economy. When the CBN raises or lowers the MPR, it effectively nudges borrowing costs up or down throughout the banking system.
By keeping the MPR at 27.5 percent, one of the highest in sub-Saharan Africa, the CBN is sending a clear message that monetary conditions will remain tight until inflation is brought firmly under control.
If inflation is falling, why didn’t the CBN cut rates?
Although headline inflation fell to 22.22 percent in June, down from 22.97 percent in May, the MPC concluded that the decline was not yet strong or stable enough to justify easing monetary policy. The committee was especially concerned about a fresh rise in monthly inflation, which could signal that core price pressures remain entrenched.
“Despite these positive developments, members observed the uptick in month-on-month headline inflation, suggesting the persistence of underlying price pressures,” Cardoso told journalists.
He explained that the committee’s decision to hold the line was meant to “sustain the momentum of disinflation and sufficiently contain price pressure.” He added that “monetary policy will need to maintain its current stance until risks to inflation recede sufficiently.”
What risks are keeping the CBN cautious?
Cardoso cited both domestic and global threats to Nigeria’s price environment. Chief among them are uncertainties tied to global trade conflicts and geopolitical tensions, which have the potential to disrupt international supply chains and raise the cost of imported goods.
“The continued global uncertainties associated with the tariff wars and geopolitical tensions could further exacerbate supply chain disruption and exert pressure on the prices of imported items,” he warned.
Locally, food price volatility and structural weaknesses in the supply chain remain a challenge, even as energy prices and the foreign exchange market have shown signs of stabilisation.
Did the CBN change any other monetary policy tools?
Alongside the MPR, the MPC held other key monetary indicators constant. The Cash Reserve Ratio (CRR), which determines the proportion of customer deposits banks must keep with the CBN, remained at 50 percent. The Liquidity Ratio, which ensures banks have enough liquid assets to meet short-term obligations, was also held at 30 percent.
However, the MPC did adjust the asymmetric corridor around the MPR to +500 and -100 basis points. This change increases the spread between the standing lending facility and the standing deposit facility, allowing the CBN more flexibility in managing system liquidity.
What is the current state of Nigeria’s banking and external sectors?
Cardoso noted that the financial system remained stable, despite the tight monetary stance. He credited this resilience to improved supervision and the ongoing recapitalisation exercise currently underway in the banking industry.
“Members also noted the continued stability in the banking system, evidenced by the stable financial soundness indicators, which would further be supported by the ongoing banking recapitalisation exercise,” he said.
On the external front, Cardoso reported sustained improvement. As of July 18, Nigeria’s gross external reserves stood at $40.11 billion, offering about 9.5 months of import cover. This performance was driven by increased capital inflows, a rise in non-oil exports, reduced imports, and improved oil production.
“The external sector also remains stable and resilient despite persistent uncertainties in the global macroeconomic environment,” he said.
What’s the CBN’s inflation outlook going forward?
Looking ahead, the CBN expects inflation to continue on a downward trajectory, supported by a combination of tight monetary policy, a more stable naira, lower fuel prices, and the start of the agricultural harvest season.
Cardoso reiterated the MPC’s commitment to data-driven policymaking, saying the committee would “continue to undertake rigorous assessment of economic conditions, price developments and outlook to inform future policy decisions.”
He also restated the CBN’s core objective. “The MPC reaffirms its commitment to the Bank’s price stability mandate and stands ready to take appropriate measures to foster stability and confidence in the economy,” he said.
FURTHER READING
When is the next MPC meeting?
The next meeting of the Monetary Policy Committee is scheduled for September 22 and 23, 2025. Until then, the CBN’s policy direction appears set: hold the line, watch the data, and wait until inflation risks subside further before considering any rate cuts.
Philip Ibitoye is a Special Correspondent with EKO HOT BLOG. Click here to find daily analysis and critical insight on trending issues in Lagos and other parts of Nigeria.
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