Nigeria Economic Update, Issue 19

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), in its 300th meeting held on the 19th and 20th of May 2025, resolved to retain the Monetary Policy Rate (MPR) at 27.50%, maintain the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 50%, and retain the Liquidity Ratio at 30%. This tight monetary stance was adopted to combat inflation and stabilise the economy. Members of the committee noted that rising inflation was driven by high electricity prices and persistent pressure from foreign exchange demand. They also expressed concerns about the recent decline in crude oil prices, attributed to increased production by non-OPEC member countries. The current MPR marks the committee’s second consecutive hold since January 2025. While the elevated MPR and CRR help curb demand-side inflation by reducing excess liquidity in the financial system, inflation in Nigeria remains largely supply-driven. As such, monetary tightening alone may not be sufficient. Furthermore, with a CRR of 50%, domestic banks are required to keep a significant portion of their funds with the CBN, limiting banks’ lending. Therefore, emphasis should not be on monetary policies alone but should be complemented by fiscal policy. This includes investments in energy infrastructure to increase electricity supply, which in turn would lower firms' spending on alternative energy use. In addition, the government should strengthen the development bank to scale targeted lending for micro, small, and medium-sized enterprises to bolster production, which in turn would curb inflation. 

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