CBN Will Maintain Tight Monetary Policy Amid Inflation Battle, Says Research Firm

Analysts at Coronation Research anticipate that the Central Bank of Nigeria (CBN) will maintain a tight monetary policy stance as the country moves into 2025.

The analysts who stated this in their report tagged ‘Coronation Research – 2025 Year Ahead’ seen by THE WHISTLER noted that a potential 25-basis-point increase in the Monetary Policy Rate (MPR) could be on the table at the January and March meetings of the Monetary Policy Committee (MPC).

In 2024, the CBN narrowed the gap between 1-year Treasury Bill (T-bill) rates and inflation, a move that has marginally improved savers’ confidence in T-bills and money market mutual funds.

By maintaining elevated T-bill auction rates, the CBN has set a foundation for higher market interest rates compared to the period of loos monetary conditions from 2020 to 2023.

Notably, T-bill yields have consistently exceeded 20 per cent per annum throughout 2024. In December 2024, the highest-yielding 1-year T-bills were auctioned at 29.51 per cent, while secondary market yields ranged between 25.00 per cent and 28.00 per cent.

Coronation Research expects the CBN to sustain these policies into 2025 to address inflationary pressures effectively.

The research projects that inflation will ease in the second half of 2025, enabling the CBN to consider cutting the MPR. Under their base-case scenario (65 per cent probability), the MPR could drop to 24.00 per cent by year-end.

An optimistic scenario (25 per cent probability), driven by potential Naira appreciation against the US dollar and a faster reduction in inflation, will see the MPR cut to 18.00 per cent.

However, in a pessimistic scenario (10 per cent probability), where the CBN prioritizes growth over inflation control, the MPR could fall steeply to 12.00 per cent.

The analysts highlighted several key factors that could contribute to reducing inflation in 2025. A gradual moderation in fuel price volatility is expected to play a significant role, helping to stabilize the broader economy.

Additionally, maintaining a degree of stability in the foreign exchange market could support efforts to control inflation. Another important factor is the continued reduction of the Central Bank of Nigeria’s direct financing to the government, known as the reversal of ways and means advances.

While inflation may increase in early 2025 due to residual effects from fuel price hikes and currency depreciation, analysts expect policy measures to yield results by mid-year. A more favorable year-on-year comparison for fuel prices and currency stability is likely to provide a clearer pathway to easing inflationary pressures.

The CBN’s focus on combating inflation through tight monetary policy is expected to continue for much of 2025. The combination of targeted policies and improving economic indicators could provide the foundation for a gradual shift towards easing monetary conditions later in the year, offering cautious optimism for Nigeria’s economic stability.

CBN Will Maintain Tight Monetary Policy Amid Inflation Battle, Says Research Firm is first published on The Whistler Newspaper