Nigeria: Easing Inflation Strengthens Case for CBN Rate Cut as MPC Convenes

Nigeria’s Monetary Policy Committee (MPC) is set to deliberate on a potential interest rate cut this week, with analysts projecting a 50–75 basis points (bps) adjustment as inflationary pressures ease and macroeconomic indicators turn positive.

According to the National Bureau of Statistics, headline inflation fell for the fifth consecutive month in August 2025, moderating to 20.12% from 21.88% in July. Food inflation also declined year-on-year, fuelling expectations that the CBN may signal its first rate cut in years and the first under the administration of President Bola Tinubu.

The MPC has maintained a tight monetary stance since 2023, when benchmark rates were gradually raised to 27.5%, but analysts believe the latest disinflation trend, alongside a stronger naira and improved external reserves, could open the door for easing.

“Domestic conditions appear increasingly supportive of a rate cut,” Afrinvest analysts noted in their weekly market update. “With headline inflation easing, the naira appreciating by 2.5% in 2025, reserves at $40.2bn—the highest since 2019—and business sentiment at a four-month high, we consider the macro environment ripe for a rate adjustment.”

Afrinvest highlighted that other African peers, including Egypt (-200 bps), Ghana (-350 bps), and Kenya (-25 bps), have already embarked on a dovish trajectory, while South Africa opted to hold rates steady. Globally, the U.S. Federal Reserve cut rates by 25 bps in September, underscoring a cautious shift among advanced economies despite persistent inflationary risks.

Cowry Asset Management analysts also flagged the strengthening naira and recent rate cuts by the U.S. Fed and Bank of England as considerations for the MPC. However, they cautioned that the Committee may adopt a balanced approach given lingering risks.

“The key question is the extent of headroom available to the MPC to adjust its policy stance,” Cowry Research stated. “While the disinflation momentum offers flexibility, residual risks from FX pass-through, food supply disruptions, and global oil volatility suggest the committee may tread cautiously.”

Meanwhile, Meristem Securities expressed concern over the potential impact of recent tax measures on foreign portfolio inflows. The Federal Inland Revenue Service (FIRS) issued a circular mandating strict compliance with withholding tax on interest from short-term securities under the new Nigeria Tax Act 2025. Analysts warned that this could temporarily discourage investors, influencing the MPC to moderate its policy shift.

Despite these uncertainties, market watchers believe a symbolic rate cut could reinforce confidence in Nigeria’s disinflationary trend and strengthen sentiment in the fixed-income and equities markets.

“If the anticipated rate cut materialises, it will not only mark a turning point in the Cardoso-led CBN’s policy cycle but also provide critical relief for the real sector, particularly SMEs, agriculture, and manufacturing,” analysts observed.

As the MPC meets, stakeholders await a delicate balancing act: preserving macroeconomic stability while creating room for growth in a gradually improving but risk-sensitive economic landscape.