What retention of lending rate at 27.50% means for economy, by experts
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) yesterday retained the benchmark interest rate and other key monetary policy parameters.
The MPC, the highest policy-making body of the apex bank, left the Monetary Policy Rate (MPR) at 27.50 per cent after its meeting in Abuja. The MPR is the benchmark interest rate that guides other rates across the economy.
Additionally, the MPC opted to “keep the asymmetric corridor around the MPR at +500 to -100 basis points.” This corridor defines the rates at which CBN lends to and borrows from commercial banks.
The committee also decided to “maintain the Cash Reserve Ratio (CRR) for deposit money banks at 50 per cent and for merchant banks at 60 per cent”.
The CRR specifies the portion of a bank’s total deposits that must be held with the apex bank.
Also, the MPC retained Liquidity Ratio(LR) at 30 per cent.
LR sets the minimum amount of liquid assets a bank must hold to meet its short-term obligations.
The Nation had earlier reported that the CBN might leave the rates unchanged because of global uncertainties and the tepid nature of the domestic pricing situation.
Experts told The Nation yesterday that the decision of the apex bank signalled a focus on stability and caution. They said the decision would further help to consolidate the gains of the monetary policy reforms of the CBN.
According to the experts, CBN‘s position suggested a focus on allowing current measures to fully filter through the economy, consolidate gains in price stability and manage inflationary pressures.
One of them, Dr Muda Yusuf, said the decision to hold the rates was in line with the expectation of many analysts.
“It is a welcome development because I believe that the monetary situation in the economy is already tight enough, so I was not expecting that there could be or there would be any further tightening,” said Yusuf, who is the Centre for the Promotion of Private Enterprise (CPPE) managing director.
Pointing out that ‘’interest rate regime had already exacerbated the cost of fund for businesses,’’ he stated that ‘’further tightening might not be in the ultimate interest of the economy.’’
Yusuf added: Holding the rates is tolerable, especially when we situate it within the context of the uncertainty in the global economy, triggered by the (Donald)Trump tariffs. The full effects of the disruption that the Trump tariffs have caused have not fully manifested.
“The relief we have was just a pause. I’m talking of the pause of rates between China and the United States, a pause of 90 days.
‘’For many other trading partners, the rates are still where they are, and the current developments also have implications, not only for commodity prices, they also have implications for capital flows. So, those are three major global variables that could pose a risk to our macroeconomic stability.
“ I believe that what the MPC has done was to be very cautious in its approach to monetary policy, to be cautious not to ease the rate at this time, because many of us feel that the rates at this time are already very high.
‘’But I also agree with the CBN that this is a time to be very cautious to see what the full impacts of the disruption that has been caused by the Trump tariffs will be for the global economy.
‘The vulnerability of the Nigerian economy lies more in the implication of these global developments for global crude oil price and the implications for capital flows, and to some extent even implications for imported inflation, particularly for businesses that import from the US.”
Managing Director, Arthur Steven Asset Management, Olatunde Amolegbe, noted that although inflation, which has been one of the main drivers of monetary action in recent times, dropped slightly for April, the fluctuations in the rates in the last four months made it difficult for the MPC to take a different direction regarding monetary policy.
According to him, ‘’in the first four months of the year, inflation rates had moved up twice and downwards twice.’’
“The decision to hold the MPR rate steady could be seen as an attempt to buy a bit more time for the economic data to show a bit more consistency.
‘’Also, the instability in the global macroeconomic environment driven primarily by the changes in tariff regime in the United States, with its resultant impact on crude oil prices, could have also impacted the decision of the MPC,” Amolegbe said.
Managing Director, Highcap Securities, David Adonri, said retaining the monetary parameters did not come as a surprise because of the relative stability of macroeconomic indicators.
According to him, there was a strong belief that the current level of tightening has fostered stability and is sufficient to counterbalance fiscal expansion and various threats facing the economy.
He, however, said the CBN could have hiked the MPR slightly as a proactive response to the deteriorating insecurity, which can spike food inflation in due course and declining crude oil prices.
Adonri added: “This is because monetary policy is futuristic, aiming to smooth the impending volatility of demand and forestall a rise in inflation.
‘’The level where the monetary parameters are now remains symptomatic of an economy that is gasping for breath. This means that fiscal policy ought to have come into resolving the structural issues causing economic dislocation so that the application of excessive monetary policy measures taken to manage demand would wind down.”
He said the “fiscal side of the economy needs to step up so that monetary policy can normalise”.
Analysts at Cordros Securities said market participants had largely anticipated the MPC’s decision to hold the policy rate and had begun re-pricing yields downward ahead of the MPC meeting.
“We do not expect a significant post-MPC decline in yields. Although recent trade uncertainties and weakening oil prices prompted some temporary sell-offs by foreign portfolio investors (FPIs), we believe the direction of domestic monetary policy will remain the dominant driver of yield movements in the short to medium term,” the analysts stated in an email to investors.
They maintained a year-end yield forecast of 18.5 per cent for Treasury bills and 17 per cent for Federal Government bonds, supported by expectations of further easing in inflation and a stable policy environment.
The analysts explained that despite broadly solid first quarter 2025 earnings, investor appetite for equities has remained tepid, with the All Share Index (ASI) of the Nigerian Exchange (NGX) rising just 1.1 per cent since the February MPC meeting.
The MPC had emphasised the importance of monitoring both domestic and international developments, a perspective that underpinned its decision to maintain the policy rate at its current level.
The Cordros Capital analysts stated that ‘’while no explicit guidance was provided on the direction of future policy moves by the CBN,’’ they believe the MPC will remain data-dependent, closely tracking trends across inflation, exchange rate movements, and broader macroeconomic conditions.’’
They pointed out that ‘’global headwinds—particularly the lingering impact of trade restrictions and tariffs—pose additional risks to short- to medium-term stability, which further justifies a cautious policy stance in the interim.”
