CBN holds interest rate at 27%

…As Cardoso says naira stability due to FX market transparency

Omeiza Bilal

The Central Bank of Nigeria (CBN) has voted to maintain the Monetary Policy Rate (MPR) at 27 percent, extending its tight monetary stance aimed at tackling persistent inflationary pressures and stabilising the volatile foreign exchange market.

The decision was reached during the 303rd Monetary Policy Committee (MPC) meeting held in Abuja, where committee members agreed to keep all key policy parameters unchanged, except for a slight adjustment to the asymmetric corridor.

Similarly, the committee retained the cash reserve ratio (CRR) at 45 per cent for Deposit Money Banks (DMBs) and 16 per cent for Merchant Banks, while CRR on Non-TSA public sector deposits was retained at 75 per cent.

Also, liquidity ratio retained at 30 per cent, and the symmetric corridor adjusted to +50/-450 basis points around the MPR

The unchanged parameters indicate the CBN’s intention to hold off on monetary easing until inflation shows clearer signs of decline.

Announcing the outcome of the meeting, Governor of the Central Bank Of Nigeria (CBN) Olayemi Cardoso said that the committee’s decision reflects its continued commitment to price stability, curbing inflation, and restoring investor confidence in the Nigerian economy.

He added that the MPC also considered a sustained monetary policy tightening, stable exchange rate, increased capital flows, and surplus current account values adding that the relative stability in the price of petrol and improved food supply supported the pace of disinflation.

He said: “Members noted the robust performance of the external sector, evidenced by the surplus current account balance and steady attrition to reserves, which have contributed to stability in the exchange rate and moderation in inflation.

“The MEC also commended the collaborative effort of both the fiscal and monetary authorities which led to the recent upgrade of Nigeria’s sovereign credit rating by major credit rating agencies and the delisting of the country from the FATF grade list. Members acknowledged that these positive developments would further boost investor confidence and improve capital flows to the economy, 

“The committee noted the satisfaction of the sustained resilience of the banking system, with most financial soundness indicators remaining within regulatory thresholds.

On the naira stability, Cardoso insisted that the transparent process in the foreign exchange market has helped in the stability the country currently enjoys.

“People buy and sell freely, and the process is open and transparent. Our EFEMS system allows everyone to see who is buying and who is selling.

“This transparency gives confidence to the market. On average, daily turnover is about $500 million, often without CBN participation. In the past, if the CBN did not intervene, nothing would happen. That era is gone.

“The market now operates with discipline, consistency and without policy flip-flops. People can plan and predict outcomes. The spread has narrowed from about 60% when we began reforms, to around 2% today.

“Travelers are witnessing the benefits. The fear and uncertainty that once characterised the market have disappeared. Nigerians can travel and pay with their naira cards without the anxiety that once existed. Nigerians are increasingly proud to hold the naira—and that is a very positive development,” he explained.

He further said that the removal of Nigeria from the TAFT grey list is extremely significant. According to him, collaborations among various agencies played a significant role, adding that the development not only strengthens Nigeria’s financial-system stability, it benefits all economic actors.

“The Central Bank, NFIU, SEC, EFCC, the Ministry of Finance and all the security agencies worked with incredible unity. This was specially acknowledged by the FATF team during their final visit before the decision was made. They cited close inter-agency cooperation as the number one factor they observed. The Vice-President himself attended and chaired the session, demonstrating strong national commitment to exiting the list. This is not something to take lightly.

“The bigger challenge, as I said earlier in relation to stability, is maintaining what we have achieved. We were not on the grey list three years ago, so certain things happened that pushed us into it. Now that we are off it, everything must be done to ensure we do not slip back.

“There are clear positives. Being off the grey list shows that Nigeria meets minimum global standards—very important for credibility. It is similar to when rating agencies issue a positive outlook: once they do so, others take notice. Exiting the grey list sends a strong signal to investors, the international community and correspondent banks. When you are on the grey list, correspondent banks become cautious; once you exit, they are far more willing to deal with Nigerian banks, and pricing becomes more competitive.

“For international remittances, being off the list changes your status from almost a pariah to partner financial institutions are willing to negotiate with on equal terms.

Professor of finance & the capital market Uche Uwaleke, told Businessaffairs the stance taken by the MPC is a welcome development noting that the real challenge is for the deposit money banks (DMBs) to translate this corridor adjustment into actual lower lending rates.

“I consider the MPC decision to maintain the MPR at 27% keeping the CRR and Liquidity Ratio unchanged, a welcome development.

“This is especially so against the backdrop of the narrowing and asymmetry of the standing facility corridor from +250/-250 bps to +50/-450 bps, effectively lowering the ceiling for CBN lending and widening the gap on the deposit end.

“This adjustment signals cautious operational easing, even as headline MPR remains elevated apparently to continue to manage inflation and FX pressure.

“With the CBN’s lending window now cheaper, banks face lower marginal funding costs which should ordinarily reduce interbank volatility and encourage lending to SMEs.

“The real challenge is whether banks will translate this corridor adjustment into actual lower lending rates,” Uwaleke said.