Why CBN retain interest rate at 27.5 percent despite easing inflation
Bilal Omeiza takes a look at the factors informing the decisions of the committee members at the MPC meeting.
In a bid to further curtail, despite easing inflationary pressure and stimulating economic growth, the Central Bank of Nigeria, again retained interest rate at 27.5 percent, amongst other decisions taken on Tuesday.
According to Governor Olayemi Cardoso, the committee’s decision was “promised on the need to sustain the momentum of disinflation and sufficiently contain price pressures” Headline inflation eased to 22.22% in June from 22.97% in May, was as a result of declines in energy prices and stable foreign exchange.
He said all 12 members of the MPC unanimously voted to retain the MOR, maintain the asymmetric corridor at +500/-100 basis points, retain the Cash Reserve Ratio at 50% for deposit money banks and 16% for merchant banks, and hold the liquidity ratio at 30%. The decision to cut the benchmark interest rate for the first time in five years, after the last time it was cut from 12.5% to 11.5% to strengthen the economy during the COVID-19 pandemic.
Experts commended the bank for retaining the interest rate, according to them slowing inflation wouldn’t have necessitated any adjustment for now and careful studies need to be undergone to understand if any adjustment is necessary.
They said, despite positive signs that show a good outlook, their significant threat ahead, which include the regional tensions in the Middle East, local politics as the country gradually moves towards election year and many other unforeseen circumstances that could further disrupt the ongoing disinflation efforts of the bank.
The continued global war, uncertainties associated with tariff war and geopolitical tensions could further exacerbate supply chain distribution, the Governor equally warned
The decision of the CBN to hold rates suggests a focus on balancing inflation control with economic stability, as businesses and consumers continue to navigate a challenging macroeconomic environment.
The Central Bank of Nigeria is playing cautious, maintaining interest rates high to anchor inflation and stabilize currency values, even as inflation gradually eases. Continued caution suggests rates may be retained for the foreseeable future, but future shifts will depend heavily on inflation and external economic trends.
The ease in Inflation trend toward 20% could prompt calls for rate cuts. But experts asked the Central Bank Nigeria to take caution in responding to such calls as it’s capable of distracting the ongoing policies that are yielding results on the economy.
Oil and Gas, Foreign Exchange developments are Significant in currency shifts or oil price drops could reshape the policy outlook.
The CBN expresses the stronger financial sector, the bank is confident in the banking system’s stability, citing strong financial soundness indicators and momentum in the CBN’s recapitalisation policy.
Eight banks, so far, according to the Governor, have fully met and surpassed the new capital requirements, with others heading toward the compliance deadline.
“Maintaining the current policy stance will continue to address the existing and emerging inflationary pressure.
It’s also noted that the economy grew by 3.13% year-on-year-in the first quarter of the 2025, an acceleration from the 2.27% recorded in previous year, support by ongoing foreign exchange reforms and macroeconomic stability efforts, as shown in the GDP reading report released by the Nation Bureau of Statistics (NBS) on Monday
Looking ahead, the CBN expects further inflation easing in the coming months, buoyed by tight monetary conditions, harvest-season food supplies, and a stable naira, as the bank expected.
