Central Bank Poised for a Steady Hand on Rates in 2025, Says Meristem
The Central Bank of Nigeria (CBN) is expected to maintain its current monetary stance for much of 2025, according to the latest outlook from Meristem Securities. The asset management firm, in its 2025 Full Year Outlook, projects that the Monetary Policy Committee (MPC) will adopt a “hold” position to consolidate progress made in curbing inflation.
In a year marked by aggressive monetary tightening, the CBN raised the Monetary Policy Rate (MPR) by a staggering 875 basis points to 27.5% by the close of 2024. The moves, part of a broader effort to tame inflation, were accompanied by liquidity management measures, including a hike in the cash reserve ratio to 50% for deposit money banks and 16% for merchant banks.
Despite the sharp tightening, Meristem’s analysis suggests a more measured approach in the months ahead. “We see the potential for a less aggressive monetary policy stance, particularly as the monetary authority has hinted at its intention to evaluate the impact of prior policy measures. This outlook is further supported by our expectation of modest moderation in inflation during the year,” the report stated.
While Meristem anticipates a dovish shift in the fourth quarter of 2025, it cautioned against premature easing, which could undo gains made in 2024. “A HOLD stance is likely for most of the year, although we cannot entirely rule out the possibility of a further 100 basis point hike in the first quarter,” the report added.
The CBN’s policy adjustments in 2024 included changes to the asymmetric corridor around the MPR, aligning market rates with monetary policy moves. This approach boosted foreign exchange inflows and contributed to exchange rate stability, a critical achievement in an economy grappling with external pressures.
Inflationary Challenges and Future Outlook
Inflation remains the CBN’s primary concern, with Governor Olayemi Cardoso reaffirming the bank’s commitment to price stability at the recent Bankers’ Dinner in Lagos. “To tackle the pressing challenge of inflation, the CBN acted decisively by raising the monetary policy rate. While these measures impose challenges on businesses and families, they are not intended to be permanent,” Cardoso stated.
He added that the central bank expects a sustained decline in inflation in 2025, emphasising that the full effects of monetary policy typically take six to nine months to manifest. “Our commitment is unwavering: we will prioritise price stability until its benefits are felt by every Nigerian,” he affirmed.
Economist Biodun Adedipe, speaking at the FirstBank Economic Outlook, predicted that a marginal downward adjustment in the MPR could occur as early as Q1 2025. However, he noted that bank lending rates would remain in double digits, tracking closely with MPR trends.
Broader Implications
The CBN’s measures have begun to yield results, with broad money supply (M3) growth slowing to 15.17% year-to-date compared to 41.14% in 2023. Private sector credit contracted by 0.68% YtD, reflecting the impact of elevated interest rates on the real economy. However, government borrowing surged, with credit to the public sector growing by 68.45% YtD.
As the MPC prepares for its next meeting, all eyes will be on inflation trends and the potential for policy adjustments. While the CBN’s tight stance has stabilised key economic indicators, the balance between curbing inflation and fostering growth remains a delicate one.
