On Thursday, February 20, 2025, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), in a landmark decision retained the Monetary Policy Rate (MPR) at 27.50 percent.
The Governor of CBN, Mr. Olayemi Cardoso, who presided over the 299th meeting of the Committee, announced that the Members after reviewing recent economic and financial developments as well as assess the risks to the outlook for 2025, unanimously voted to hold all monetary parameters constant.
According to Cardoso, all the twelve members of the Committee were in attendance, and were unanimous in their decision to Retain the MPR at 27.50 per cent, Retain the asymmetric corridor around the MPR at +500/-100 basis points, Retain the Cash Reserve Ratio of Deposit Money Banks at 50.00 per cent and Merchant Banks at 16 per cent, and Retain the Liquidity Ratio at 30.00 per cent.
Their decision to hold all parameters despite the obvious stability in the foreign exchange market with the resultant appreciation of the exchange rate and the gradual moderation in the price of Premium Motor Spirit (PMS), was premised on the risks of persisting inflationary pressures driven largely by food prices.
The MPC had maintained a marginal increase in MPR since February 2024. Precisely, in the February 2024 meeting, the Committee raised the MPR by 400 basis points to tame the rising inflation in the country.
The trend continued in a downward trajectory with 200 basis points in March 2024, 50 basis points in May 2024, 150 basis points in July 2024, 50 basis points in September 2024, and 25 basis points in November 2024, before retaining it in February 2025.
The pattern from 400 basis points in February 2024, to zero in February 2025 was an indication that the trend would be downward going forward, which is expected to have positive effects on Bonds and Treasury Bills. And also good for businesses, as they look forward to lower interest rate regime environment.
It should be noted that the committee’s decision to sit on the fence was the best, as the recently rebased Consumer Price Index of 24.48%, announced by the National Bureau of Statistics (NBS) could not be used as a yardstick for policy change.
EXCHANGE RATE STABILITY/DIASPORA REMITTANCES
The Committee expressed satisfaction with the recent macroeconomic developments which are expected to positively impact price dynamics in the near to medium term.
These include the stability in the foreign exchange market with the resultant appreciation of the exchange rate and the gradual moderation in the price of Premium Motor Spirit (PMS), but was cautious of the risks of inflation.
It noted the benefits of increased collaboration between the monetary and fiscal authorities as demonstrated at the recently concluded Monetary Policy Forum organized by the Bank. Therefore, urged the continued strengthening of the collaboration to achieve the mutually beneficial objectives of price stability and sustainable growth.
The Committee also highlighted the benefits of the improvements in the external sector to exchange rate stability, including the convergence of rates between the Nigeria Foreign Exchange Market (NFEM) and the Bureau de Change (BDC), and urged the Bank not to relent in its effort to boost market liquidity.
In this regard, the Committee acknowledged recent measures introduced by the Bank, such as the Electronic Foreign Exchange Matching System (B-Match) and the Nigeria Foreign Exchange Code, to foster transparency, ethics and credibility in the market.
The MPC is thus, of the view that following major policy measures undertaken by the monetary and fiscal authorities, the flow of foreign direct and portfolio investments as well as diaspora remittances would increase as investor and stakeholder confidence improves.
BANKING SECTOR
The MPC observed that despite pockets of macroeconomic headwinds confronting the Nigerian economy, the banking system has remained robust and resilient.
However, it urged the apex bank not to relent on its keen surveillance of the banking system, especially at a time of significant exogenous and endogenous headwinds.
In addition, the Committee called on the Management of the Bank to closely monitor the ongoing recapitalization of the banking system to ensure the injection of quality capital as envisaged in the framework.
Overall, the MPC acknowledged the various policies by the Bank, aimed at anchoring inflation expectations, easing exchange rate pressures, deepening financial inclusion, and improving the transmission mechanism of monetary policy.
EXTERNAL RESERVES
According to the committee, the nation’s external reserves remained robust at US$39.4 billion as of 14th February 2025, translating to an import cover of 9.6 months for goods and services.
In addition to this, it said, the Balance of Payments has remained strong with a positive current account balance of US$6.06 billion as at the end of the third quarter of 2024.
