The monetary policy committee maintained the policy rate at 27.5%, Governor Olayemi Cardoso told reporters in Abuja, the capital on Thursday. Eight out of nine economists in a Bloomberg survey correctly predicted the decision.
“The MPC noted with satisfaction recent macro economic developments,” Cardoso said, citing recent stability of the naira. “The committee was unanimous in its decision to hold all parameters.”
The MPC has raised rates by a cumulative 16 percentage points since 2022 to cool decades-high inflation and steady the naira, which has depreciated 70% against the dollar following currency reforms in 2023.
On Track
While Cardoso acknowledged that US trade policy poses potential risks to global inflation, he voiced guarded optimism his policy measures are working.
“Confidence is gradually returning to our market which shows that we are on the right course,” he said. “We can see that inflation is gradually trending down.”
The naira has stabilized since early December trading at a narrow range between 1,470 and 1,550 per dollar. And following a revamp in how the data was calculated, annual inflation slowed to 24.5% in January, versus 34.8% a month earlier according to the old method.
What Bloomberg Economics says…
“Inflation will likely moderate in the first half of 2025 – off a high base set by the naira’s devaluation a year earlier. This, plus the restoration of positive real rates, will likely give policymakers room to start cutting rates by the end of 2025, ” says Yvonne Mhango, Bloomberg Africa economist.
The statistics agency overhauled the consumer price index for the first time in 16 years and changed the reference year to 2024. It also reweighted categories including food and non-alcoholic beverages and increased the number of items in the inflation basket to 934 from 740.
Cardoso welcomed the changes, but cautioned that officials were still watching prices.
“What we have is a CPI that is more reflective of the reality of consumption patterns and that’s a good thing,” he said. “Members, however, were not oblivious to the risk of persisting inflationary pressures driven largely by food prices.”
Still, analysts said the governor was warranted in taking a cautious victory lap.
“We do think he’s right that domestic factors will start to push inflation down,” Capital Economics’ David Omojomolo wrote in a client note. By the time of the MPC’s May 19-20 meeting, it will likely have more data confirming price pressures were cooling.
“Based on this, we see it cutting interest rates by 100 basis points to 26.5% at that meeting, with the policy rate falling to 24.75% by year-end,” he said.
