MPC May Hold MPR at 27.5%, but Hike Looms

Samuel Mobolaji

As the Central Bank of Nigeria’s Monetary Policy Committee (MPC) prepares for its landmark 300th meeting on May 19–20, 2025, financial analysts and economists are bracing for a cautiously assertive policy outcome.

While the most likely scenario is a decision to hold the Monetary Policy Rate (MPR) at 27.5%, a modest hike of 25 basis points remains on the table as inflation, though easing on paper, remains structurally high.

At its last meeting in February, the MPC held all key rates steady, including the MPR at 27.5%, the liquidity ratio at 30%, the cash reserve ratio (CRR) for commercial banks at 50%, and 16% for merchant banks. That decision followed a surprising drop in headline inflation to 24.48% in January from 34.80% in December 2024.

However, the MPC attributed the fall to the rebasing of the Consumer Price Index (CPI) by the National Bureau of Statistics, not to actual disinflationary progress.

New data from April show headline inflation further declining to 23.71% from 24.23% in March. Food inflation also edged lower to 21.26% from 21.79%. Yet despite these figures, the inflation index climbed to 119.52 in April from 117.34 in March, indicating persistent monthly price increases and suggesting inflationary pressure has not truly abated.

Managing Director of Rostrum Investment & Securities Ltd, Mr. Olaitan S. Sunday, sees the trend as a sign of improving economic conditions. “This downward trajectory suggests easing pressure on households. Holding the MPR at 27.5% supports the naira and strengthens investor confidence,” he said.

Afrinvest’s Head of Research, Damilare Asimiyu, also expects a hold, citing recent gains in exchange rate stability and lower fuel prices driven by Dangote Refinery’s cut from N835 to N825 per litre. “This should reduce business costs and improve household spending power,” he added.

Still, major risks cloud the outlook. On Drinks and Mics, a podcast hosted by Nairametrics TV, panellists criticised the use of CRR as a blunt liquidity tool, arguing it is curbing credit to key sectors like manufacturing and agriculture at a time when real sector expansion is needed. They also cited rising insecurity, political uncertainty, and unstable oil output as factors making the policy environment more volatile.

David Adonri, MD of Highcap Securities, stressed that demand-side pressures remain elevated, warning that “the MPC must stick to its hawkish posture to check inflation.” Utica Capital MD, Mr. Kanabe Ayegbeni, believes the MPR has seen enough hikes recently and said keeping it steady would aid market stability.

Still, some observers believe unresolved macroeconomic fragilities may compel a tightening move. “The MPC may act more forcefully than inflation numbers suggest,” said Highcap Securities Vice Chairman, David Adonri. “Persistent supply shortages and strong demand warrant caution.”

Olabode Odunniga, Investment Manager at Redwood Asset Management, also believes a rate cut is premature. “Despite easing inflation, global risks like Trump’s tariffs still pose threats. The MPC will likely hold steady until the second half of the year,” he said.

According to Nairametrics, the base case remains a rate hold to preserve recent gains and buy time for more clarity. But a small hike cannot be ruled out if the committee feels the need to strengthen its hawkish stance amid lingering forex pressures and external uncertainties.

The MPC is expected to remain risk-averse and data-driven. Market participants should brace for a steady hand, while watching the committee’s forward guidance closely for cues on what direction policy may take in the second half of 2025.