In a move closely watched by economists and investors, the Central Bank of Nigeria (CBN), at the end of its July 2025 Monetary Policy Committee (MPC) meeting, decided to retain the Monetary Policy Rate (MPR) at 27.50 per cent. It was the third time in a row that the CBN held the rate steady after a period of aggressive hikes aimed at taming inflation and restoring stability to the foreign exchange market. Assistant Editor Nduka Chiejina looks at the issues raised at the last MPC meeting.
The decision to hold rate by the Central Bank of Nigeria (CBN) signaled a cautious optimism within the bank that previous tightening measures are beginning to take effect. It is also a moment for the CBN to take stock — evaluating not only its progress in driving down inflation, but also the broader macroeconomic implications of its monetary policy stance.
Mr. Yemi Cardoso, Governor of the CBN while addressing journalists after the meeting, acknowledged that the policy direction adopted since he assumed office in October 2023 was working, but warned that the battle was far from over.
Beyond the headlines, the July MPC also reflects the central bank’s strategic decision to balance inflation control with broader economic realities — including a gradual return to growth, stabilising external reserves, and the strengthening of the naira. As inflation slowed to 22.22 per cent in June 2025, economic observers began to shift their attention to how long this disinflation trend will last and what lies ahead.
A Turning Point in Monetary Tightening
For most of the past year, the Central Bank of Nigeria pursued an aggressive tightening stance. The July decision to retain rates was not a retreat from its inflation fight but a calculated judgment that its tools are beginning to yield results.
According to CBN Governor Yemi Cardoso, the bank needed to allow time for the full effects of past tightening to filter through the economy. “We recognise our policy toolkit is working. However, we must remain vigilant and stay the course if we are to bring inflation down to single digits.”
The decision to hold was also a nod to current trends in inflation and the real economy. Headline inflation decelerated from 23.71 percent in April to 22.22 percent in June. Core inflation — which excludes volatile items like food and energy — also showed signs of easing.
From an economic perspective, this signals that the lag effects of monetary policy are now surfacing. In advanced economies, monetary policy typically takes 9–12 months to show full impact. Nigeria, with its structural peculiarities — including low financial inclusion, dollarisation, and supply-side pressures — may experience even longer transmission lags.
Yet, the implications are important: with inflation beginning to ease and growth showing early signs of resilience (Q1 2025 GDP at 3.13 per cent), monetary authorities must now prevent overshooting — tightening too far and choking recovery. The July hold could therefore be interpreted as a shift to a wait-and-see mode, while preserving flexibility for future hikes if inflation rebounds.
Moreover, holding the rate provides breathing room for credit markets. High interest rates raise the cost of borrowing, affect bank lending, and suppress consumer demand. The MPC may have chosen to avoid compounding these effects, especially with reforms in the energy and transport sectors already squeezing household income.
Inflation Trends – Still a Long Road
Though recent inflation data gave cause for cautious optimism, the central bank is not yet declaring victory. Headline inflation, while down to 22.22 percent, remains high compared to pre-2020 levels and is still well above the CBN’s preferred single-digit range.
The main drivers of inflation in Nigeria remain food prices, energy costs, exchange rate volatility, and structural supply constraints. The removal of petrol subsidy and FX liberalisation in 2023–2024 led to price adjustments across the economy, and many of these are still working their way through supply chains.
In real terms, while the disinflation is welcome, it is not yet broad-based. Food inflation — particularly in rural areas — remains elevated due to logistics bottlenecks, insecurity, and imported inflation from a weak naira. Transportation, rents, and education costs continue to weigh on urban households.
Economic analysts warn that inflation expectations remain sticky. In a highly informal and cash-based economy like Nigeria’s, prices tend to adjust upward quickly but are slow to revert downward. For the CBN, anchoring inflation expectations will require continued monetary discipline, better communication, and improved coordination with fiscal authorities to avoid slippages.
The CBN projects further disinflation in the second half of 2025, supported by base effects, easing energy costs, improved food supply from the harvest season, and a more stable FX market. However, the risks remain — especially from external shocks such as oil price volatility, food import disruptions, and global interest rate shifts.
For the public, inflation affects more than just economic indicators. It shapes purchasing power, savings decisions, and perceptions of government effectiveness. The credibility of the CBN’s inflation strategy therefore has social and political as well as economic consequences.
Exchange Rate Stability and Naira’s Recovery
One of the central bank’s biggest battles over the past year has been restoring order to the foreign exchange market and building confidence in the naira. Following months of severe volatility in 2023, the FX market has seen increased stability in recent months, with the naira holding steady around N1,500/$ on the official window.
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Governor Cardoso credits this improvement to better coordination between the central bank and the Nigerian National Petroleum Company Limited (NNPC), which is the largest supplier of forex. “We now have more visibility on inflows and better predictability in the FX market,” he said at the MPC briefing.
CBN’s FX reforms have focused on transparency, eliminating multiple windows, clearing the backlog of FX forward obligations, and creating a more market-reflective exchange rate regime. With the return of portfolio inflows and improved reserves now standing at $40.11 billion, the pressure on the naira has eased considerably.
For many observers, the improved FX liquidity and predictability represent a psychological shift. “People are beginning to have faith in the naira again,” Cardoso noted, citing an example where a travel agent now accepts payment in naira rather than demanding dollars.
In economic terms, exchange rate stability is vital. It lowers imported inflation, improves investor confidence, reduces demand for dollars, and enables better planning for businesses. For manufacturers and importers, stable FX means improved margins and clearer cost projections. For the CBN, it also makes monetary policy transmission more effective.
Yet, challenges remain. Nigeria’s dollar inflows are still heavily reliant on oil exports and diaspora remittances. Diversifying FX sources — including through non-oil exports, services, and FDIs — will be key to sustaining FX market gains.
The Banking Sector and Recapitalisation Drive
As part of its medium-term reforms, the CBN has initiated a major recapitalization programme for Nigerian banks, mandating new capital thresholds based on the size and license category of each institution.
Olayemi Cardoso revealed that eight banks have already met the new capital requirement, and others are actively raising funds via rights issues, mergers, or capital injections. “This is not a tick-box exercise,” he said. “It’s about protecting depositors and making our banks fit for the future.”
The recapitalisation push is informed by economic realities. With Nigeria targeting a $1 trillion economy by 2030, the financial system must be robust enough to fund infrastructure, industrialisation, and large-scale transactions. Weakly capitalised banks pose systemic risks and cannot support long-term development goals.
In macroeconomic terms, stronger banks are critical to financial stability. They provide credit intermediation, enable payment systems, and act as shock absorbers during crises. During the 2008–2009 global financial crisis, Nigerian banks with stronger buffers proved more resilient.
Additionally, recapitalized banks are more attractive to foreign investors and rating agencies. They improve Nigeria’s sovereign risk profile and increase capacity for project finance. However, consolidation may occur — not all banks will survive as stand-alone entities. For consumers, a more consolidated banking system could mean better services but reduced competition.
The CBN’s close supervision and phased implementation aim to prevent market disruptions. But the broader implication is clear: financial sector reform is a pillar of Cardoso’s strategy to build long-term economic resilience.
One of the most significant but less visible wins of the Cardoso-led CBN is the return of investor confidence. After years of opaque monetary operations and deficit monetisation, the central bank has taken steps to restore credibility, transparency, and market discipline.
The successful completion of Nigeria’s Article IV consultation with the International Monetary Fund (IMF) was a key moment. For the first time in years, the IMF gave a green light to the country’s economic policies, citing improved coordination between fiscal and monetary authorities.
“The world sees that we are no longer financing deficits by printing money,” said Cardoso, referring to the controversial ways and means advances that previously destabilized monetary conditions.
Rating agencies such as Moody’s and Fitch have noted improved policy coherence, while portfolio flows into Nigeria’s bond and equities markets have gradually resumed. Eurobond yields have narrowed, and Nigeria’s sovereign risk premium has declined.
Investor confidence also ties back to inflation expectations. When markets believe that the central bank is serious about price stability, they are more willing to hold naira assets, lend to the government at lower rates, and fund private sector expansion.
Economically, this renewed trust reduces the cost of borrowing, improves budget planning, and enhances the environment for long-term investment. For the average Nigerian, it means lower interest rates, more job opportunities, and a more stable macroeconomic climate.
The Road Ahead – Staying the Course
Looking forward, the CBN faces a complex set of trade-offs. While recent gains are encouraging, the central bank must now focus on consolidating progress and avoiding policy reversals.
Governor Cardoso has already hinted at future direction: “We expect headline inflation to continue to decline in the coming months, supported by better harvests, stable FX, and the drop in petrol prices.” However, he also cautioned that vigilance is necessary.
Monetary policy will need to remain tight until inflation expectations are firmly anchored. At the same time, coordination with fiscal policy is essential to ensure that interest rates do not crowd out private investment or stifle growth. Infrastructure spending, social protection, and food security measures must complement the disinflation strategy.
On the exchange rate front, the CBN will likely continue to improve FX market transparency, manage reserves prudently, and deepen liquidity through exports and diaspora flows. Any return to administrative controls or multiple rates could undo recent credibility gains.
In banking, the recapitalisation programme must be concluded efficiently, ensuring that the financial system is strong enough to support the next phase of Nigeria’s economic transformation.
Ultimately, Cardoso and his team are playing the long game. By restoring confidence, stabilising the macroeconomy, and cleaning up institutional practices, they are laying the foundation for inclusive growth. The July 2025 MPC meeting may go down as the moment the CBN chose to hold — not out of fear, but out of growing confidence that Nigeria is turning a corner.
Expert opinion
Dr. Samson Galadima Simon, Chief Economist at ARKK Economics and Data Limited Abuja, in his reaction to the MPC’s decisions said that “the CBN’s overarching mandate still remains price stability which means inflation rates being low, stable and predictable at single digits.”
He noted that “while inflation rate is reducing, the target of 6-9 percent for Nigeria is still far off. This clearly shows the CBN has a lot to do to deliver on its core mandate. And since raising interest rate is not an option as that threatens growth, the best option is to retain the parameters and watch as they help bring inflation back to target.”
Dr. Galadima Simon cautioned that while “disinflation is generally considered good news for a monetary authority on a mission to tame inflation. However, it is not yet uhuru.
Measures must still be taken to accelerate the extent of the deceleration to bring price to target.”
On his part, Dr. Wahab Balogun, Managing Director and Chief Executive Officer of Ambosit Capital Managers stated that as a keen observer of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) over the years, “the actions taken under Governor Olayemi Cardoso—particularly the outcomes of the July 2025 MPC meeting—signal a clear departure from the past and a bold attempt to restore macroeconomic discipline.”
“The posture of the current MPC is markedly different from previous iterations. There is now a strong focus on stability, credibility, and long-term reforms, even as the economy undergoes short-term pain. For the first time in years, Nigeria’s monetary policy appears to be charting a consistent and transparent path” he said.
According to Dr. Balogun, “headline inflation has fallen from over 33 percent in March 2025 to 22.22 percent in June. This decline may partially be due to seasonal factors and base effects, but it also points to a more responsible money supply environment. For analysts, this is the strongest indication yet that monetary policy is working again. Inflation targeting is no longer a mere talking point; it is now backed by tough policy decisions.”
Balogun argued that “the commitment to a market-based foreign exchange (FX) system—despite its initial turbulence—has restored some investor confidence. While naira volatility remains a concern, the convergence of exchange rates, especially in the Nigeria Autonomous Foreign Exchange Market (NAFEM), indicates a maturing FX regime.
Also worth noting he pointed out “is the monetary authority’s willingness to engage with structural issues such as bank recapitalization, FX reforms, and the development of long-term savings mechanisms like the proposed Nigeria Sovereign Investment Trust (NSIT). These moves suggest a forward-looking policy environment, not just one reacting to crises.”
For many analysts, the most significant change is the Central Bank’s new economic philosophy: discipline over populism, transparency over discretion, and market forces over administrative controls.
Governor Cardoso’s approach is reshaping the institutional character of the CBN. By committing to data-driven policies, pushing back on political pressure, and communicating clearly, the current team is trying to rebuild the Bank’s credibility—damaged in past years by opaque decisions and questionable interventions.
The long-term success of these efforts, however, depends on three key factors: Staying the course—especially when political cycles and public discontent challenge reform momentum. Complementary fiscal policy—government must also control spending, enhance revenues, and invest in infrastructure. Patience and communication—Nigerians need to understand the reform pain is necessary to avoid bigger future crises.
The Cardoso-led CBN has made a promising turn toward restoring economic stability and credibility. The questions that remain are: Can the government shield the most vulnerable from these shocks? Can structural reforms be accelerated to complement monetary tightening? And will the CBN resist political pressure in the run-up to 2027?
L-R: Deputy Governor, Financial System Stability Directorate, Mr. Philip Ikeazor; Minister of Finance and Coordinating Minister of the Economy Mr. Wale Edun and Governor of the CBN, Mr. Olayemi Cardoso
