Central Bank of Nigeria leaves rates unchanged in May

Central Bank stays put: At its meeting on 21–22 May, the Central Bank of Nigeria (CBN) decided to maintain its policy rate at 27.50%. The decision marked the second consecutive hold and had been anticipated by markets.

CBN maintains wait-and-see approach: The Bank noted that food inflation has moderated and added that both the country’s external position and currency stability have improved. Nonetheless, it flagged that inflationary and FX demand pressures remain elevated. Meanwhile, policymakers likely also mulled the recent decline in the price of oil, a key Nigerian export whose revenues usually account for around half of the country’s budget; monetary policy decisions affect the government’s cost of financing. In a subsequent press conference, Governor Olayemi Cardoso stated that the Bank held rates in order to “enable a better understanding of near-term developments”.

Central Bank to cut rates ahead: The communiqué did not provide specific forward guidance on future interest rate decisions. All our panelists expect the Bank to lower rates by end-2025, with projections ranging from 25 to 450 cumulative basis points of cuts, and the majority of panelists see the first reduction in Q3. The next meeting is scheduled for 21–22 July.

Panelist insight: Analysts at the EIU commented on the interaction between fiscal and monetary policy: “High interest rates mean that debt service is alarmingly high (regularly exceeding 100% of government revenue), and parliament has recently rejected tax rises, leaving the government with virtually no room for manoeuvre. Consequently, we still believe that fiscal dominance has a role in the short- to medium-term outlook for monetary policy, and expect the CBN to succumb to pressure to cut rates, assuming that inflation, though high, continues to slow. Maintaining a tighter monetary stance in real terms would be destabilising, particularly as softening world oil prices will add to pre-existing pressures.”

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