In brief
- Nigeria’s Monetary Policy Committee (MPC) unanimously voted to keep all parameters of monetary policy unchanged, effectively maintaining the policy rate at 27.5% at the February 2025 MPC meeting. Although the Committee stressed the risk of persistent pressures from food inflation (which remains above the headline rate), members found solace in the return to FX stability and gradual moderation in the price of Premium Motor Spirit (Petrol).
- Given the lower inflation under the new CPI series, the estimated real policy rate now stands at a positive 3.0%, revealing a tighter policy stance than was suggested under the old CPI series which implied a negative real policy rate of 7.3% in December 2024. Inevitably, the MPC expectedly retained the policy rate at 27.5%, aligning with our revised rate expectation post-CPI rebasing and potentially signalling an end to the rate hiking cycle.
- We laud the authorities’ unrelenting push to enhance transparency and efficiency in the foreign exchange market. The resultant price discovery underpins the tighter spread between the official FX rate and the parallel market rate, reflecting a firmer investor confidence and calmer market conditions. The MPC’s encouragement for the CBN to sustain its FX market intervention sale is the second successive meeting in which the Committee has issued its approval for FX sale, signalling continued support for market liquidity.
- In the absence of the backcast CPI data to accurately judge the trend of inflation under the rebased series, we remain cautious on the inflation risk. We observed that the revised CPI series showed a month-on-month headline inflation of 10.7%, significantly higher than the 2.4% m/m rate under the old series in December. Against the backdrop of limited information to accurately judge the inflation path and the elevated sequential rate for January 2025 (under the new series), we do not envisage a cut at the next meeting in May 2025 as the authorities become data dependent.
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