CBN Targets Single-Digit Inflation Amidst Monetary Policy Tightening
The Central Bank of Nigeria (CBN) has reiterated its ambition to drive inflation down to a single-digit level over the next three years. This follows the rebasing of the Consumer Price Index (CPI), which saw inflation decline to 24.48%.
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CBN Governor, Dr. Olayemi Cardoso, made this disclosure at a press briefing after the 2025 Monetary Policy Committee (MPC) meeting, where he emphasized the bank’s commitment to orthodox monetary policies. While the CBN maintains that inflation is on a downward trajectory, critics argue that external factors such as high borrowing costs and persistent structural inefficiencies may hinder the realization of this target.
Policy Rates Remain Unchanged
In a move seen as cautious, the MPC decided to retain all key monetary policy parameters, keeping the Monetary Policy Rate (MPR) at 27.50%, the asymmetric corridor around the MPR at +500/-100 basis points, the Cash Reserve Ratio (CRR) at 50.00% for Deposit Money Banks and 16.00% for Merchant Banks, and the Liquidity Ratio at 30.00%.
Cardoso clarified that the rebased CPI should not be misinterpreted as an outright reduction in inflationary pressures, stating that a broader data analysis is necessary before drawing comparisons. However, economic analysts suggest that without aggressive structural reforms and improved productivity, the inflation target may remain elusive.
Foreign Exchange Stability and Investor Confidence
Despite prevailing macroeconomic challenges, the CBN noted a narrowing gap between the official and parallel foreign exchange markets, with the exchange rate differential now below 1%. This, according to Cardoso, signals growing stability in the forex market, a crucial factor in reducing inflationary pressures.
However, skeptics argue that the FX market remains susceptible to external shocks and speculative activities, raising concerns over the sustainability of this stability. Additionally, while the CBN anticipates that improved oil production—reported at 1.54 million barrels per day as of January 2025—will strengthen Nigeria’s current account position, global oil price fluctuations could dampen these expectations.
The Cost of High Interest Rates
The decision to maintain high borrowing costs has sparked concerns among businesses and consumers alike. While the CBN insists that stabilizing the forex and financial markets will ultimately attract foreign investment and spur economic growth, critics warn that elevated interest rates could stifle domestic investment and worsen unemployment.
A key concern remains the impact of the bank’s policies on the real sector, particularly small and medium enterprises (SMEs), which struggle with access to affordable credit. Experts argue that balancing inflation control with growth stimulation requires a more nuanced policy approach.
Banking Sector Resilience and Oversight
The MPC acknowledged the resilience of Nigeria’s banking sector but urged the CBN to exercise strict oversight, particularly in light of ongoing recapitalization efforts. The Committee stressed the need to ensure that only quality capital is injected into the system to safeguard financial stability.
Additionally, the MPC commended recent measures, including the introduction of the Electronic Foreign Exchange Matching System and the Nigeria Foreign Exchange Code, aimed at enhancing transparency and credibility in the forex market. These steps, the committee believes, will improve investor confidence and boost foreign direct investment (FDI), portfolio inflows, and diaspora remittances.
Challenges and the Road Ahead
While the CBN remains optimistic, economic observers highlight several challenges that could derail the inflation target, including lingering security concerns in food-producing areas, energy price volatility, and global economic uncertainties.
The MPC underscored the importance of sustained collaboration between monetary and fiscal authorities to consolidate recent gains. However, without comprehensive structural reforms, enhanced productivity, and deliberate economic diversification efforts, the CBN’s inflation target may prove overly ambitious.
As Nigeria navigates its economic recovery, the coming months will test the effectiveness of the CBN’s policies in achieving sustainable growth while ensuring price stability.
Reference
CBN Targets Single-Digit Inflation Amidst Monetary Policy Tightening