Central Bank of Nigeria raises rates in November

Bank delivers smaller-than-expected hike: At its meeting on 25–26 November, the Central Bank of Nigeria (CBN) decided to raise the Monetary Policy Rate (MPR) by 25 basis points to 27.50%. The hike was slightly below market expectations.

Soaring price pressures prompt another hike: The decision came on the heels of renewed inflationary pressures, with headline, food and core inflation rates all rising both year on year and month on month in October. The Bank also expressed concern regarding the recent increase in fuel prices and its impact on the cost of producing and distributing goods. Meanwhile, the CBN noted that economic growth continued to recover in Q3, giving it room to tighten its stance further.

Bank to cut rates in 2025: The communique did not provide explicit forward guidance. That said, at an annual dinner with the banking industry, Governor Cardoso stated that “these measures are not intended to be permanent” adding that the Bank will ease its stance if inflation slows as expected in the near future. Our panelists expect the Bank to reduce rates by end-2025. The next meeting is scheduled for 27–28 January.

Panelist insight: Analysts at Fitch Solutions commented on the outlook: “We expect that inflation will moderate further beyond Q1 [2025], reaching 21.9% y-o-y by year-end. This will allow the CBN to adopt a more dovish stance and embark on a decisive cutting cycle starting in Q2. Although Governor Cardoso did not mention pursuing [positive] real interest rates in the November statement, he outlined this goal in September. Assuming this remains a key objective, we expect the CBN to lower the rate to 23.00% by end-2025, bringing real rates back to positive territory while adopting a more accommodative monetary policy stance to stimulate private-sector activity.” Meanwhile, analysts at the EIU said: “We expect inflation to reach 35% at end-2024 and to remain high in 2025, at an average of 27.7%. We forecast another 25-basis-point rise at the next MPC meeting in January 2025, marking the apex of the cycle, followed by cuts from mid-year as disinflation sets in.”

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