In brief
- MPC holds policy rate at 27.5% amidst external uncertainty and inflation volatility. The Monetary Policy Committee (MPC) of Nigeria’s Central Bank retained the Monetary Policy Rate (MPR) at 27.5% at the May 2025 meeting. The Committee’s decision aligns with our expectation as we view the uncertain external developments with a resultant downside risk for crude oil price as a threat to Naira stability. Additionally, the post-rebasing inflation dynamics have been less encouraging, with consistent fluctuations in the first four months of the year, emphasizing the need for caution in the policy stance.
- FX stability returns, but still too early to ease. The MPC noted improved exchange rate stability, with narrowing of the spread between the official and parallel market rates boosting confidence. Despite the recent foreign portfolio outflows, FX reserves remain strong at USD 38.5bn (7.6 months of import cover), supporting near-term Naira stability around 1,600/USD. However, we believe the fragile external market conditions support continued policy caution.
- Reform momentum continues, with cautious optimism on diaspora inflows. The Committee reaffirmed support for sustained FX market reforms, emphasizing the need to boost non-oil FX earnings. We expect the recent launch of the Non-Resident Bank Verification Number (NRBVN) platform to enhance remittance inflows through official channels, although we remain cautious on achieving the authorities’ USD 1.0bn/month target. Nonetheless, we think improving non-oil FX inflows support a more stable medium-term outlook for the Naira.
- Sticky inflation tempers hope for policy shift. Post-rebasing inflation has remained volatile, hovering around 24.0% and driven by structural issues like food supply constraints, high electricity costs, and FX pressures. With limited disinflation signals and ongoing external uncertainties, we think the MPC is likely to maintain a cautious stance. The back-to-back rate hold suggests an end to the rate hiking cycle, reinforcing expectations for a continued pause in July as the authorities prioritize FX stability and inflation anchoring.
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