28th February 2025
The Central Bank of Nigeria (CBN) has taken strategic steps to stabilize the naira and control inflation, ensuring a more stable economic environment.
Key Monetary Policy Decisions
At its 299th Monetary Policy Committee (MPC) meeting on February 19-20, 2025, the CBN decided to maintain the Monetary Policy Rate (MPR) at 27.5%. Other parameters, including the Cash Reserve Ratio (50% for Deposit Money Banks and 16% for Merchant Banks) and the Liquidity Ratio (30%), remained unchanged.
This decision follows six consecutive rate hikes in 2024 and reflects a balanced approach to inflation control and exchange rate stability. The committee acknowledged improvements in the foreign exchange market, external reserves, and a gradual moderation in fuel prices.
Naira Stability and Foreign Exchange Reforms
The CBN’s policies have contributed to a more stable naira, with exchange rate fluctuations narrowing significantly. As of February 20, 2025, the naira appreciated by 6.95% in the parallel market, trading at N1,510/$, a notable recovery from 2024’s sharp depreciation.
A key factor in this stability is the introduction of the Electronic Foreign Exchange Matching System and the Nigerian Foreign Exchange Market FX Code, which have improved market transparency and liquidity. The reduction in the gap between official and black market rates has boosted investor confidence.
Tackling Inflation
While naira stability has improved, inflation remains a challenge. Nigeria’s inflation rate stood at 24.48% in January 2025, following an adjustment to the Consumer Price Index. The CBN aims to bring inflation down to single digits in the medium term.
The decision to hold the MPR at 27.5% reflects a tight monetary policy stance to control liquidity and curb inflation. While this helps contain inflationary pressures, high interest rates pose challenges for businesses and consumers.
Strengthening the Banking Sector
Beyond currency stability and inflation control, the CBN is focusing on banking sector resilience. A major reform is the upcoming increase in minimum capital requirements for banks, set for implementation in March 2026. This move is intended to strengthen financial institutions and ensure economic stability.
The banking sector remains strong despite macroeconomic challenges, and the CBN is committed to monitoring financial institutions to ensure stability.
Need for Fiscal and Monetary Coordination
The MPC emphasized the importance of collaboration between monetary and fiscal authorities. Addressing food inflation—one of the main drivers of rising consumer prices—requires targeted government interventions to boost agricultural production and improve supply chains.
Financial analysts have stressed the need for alignment between monetary and fiscal policies to prevent conflicting economic outcomes. A harmonized approach will help sustain recent economic gains and foster long-term stability.
Economic Outlook
The CBN’s policies are already attracting foreign investment, with Nigeria securing over $9 billion in Eurobond subscriptions in late 2024 and witnessing a surge in foreign portfolio investments. These reforms, if sustained, could lead to a more flexible foreign exchange regime and a stable financial system.
As Nigeria navigates its economic recovery, the success of these measures will depend on their effective implementation and the continued synergy between fiscal and monetary policies. The CBN’s commitment to stability, transparency, and policy consistency remains crucial for sustainable economic growth.
