MPC Expected to Cut Rates by 25bps as Inflation Eases, Exchange Rate Stabilizes

Small businesses set to benefit as Nigeria’s monetary authorities prepare for cautious policy easing

Nigeria’s Monetary Policy Committee (MPC) will meet on July 21-22, with growing market consensus pointing to a likely 25 basis points (bps) cut in the benchmark Monetary Policy Rate (MPR). This follows early signs of easing inflation and improved exchange rate stability, offering the Central Bank of Nigeria (CBN) an opportunity to begin a gradual shift towards monetary policy easing.

Market analysts cite a combination of factors supporting the potential rate cut. Inflation, which had soared to alarming levels earlier in the year, is showing signs of moderation. According to projections, headline inflation is expected to ease to 22.65% in June, down from 22.97% in May. The decline is attributed to a recent ₦100 drop in the pump price of Premium Motor Spirit (PMS), stability in the naira exchange rate, and slower money supply growth.

Adding to the positive sentiment, the International Monetary Fund (IMF) forecasts that inflation will continue to decline in Q4 2025, potentially reaching 18% in 2026 if the current trend holds. Domestic monetary policy signals also point towards easing, with the Debt Management Office (DMO) recently reducing the stop rate on 365-day treasury bills to 16.76% per annum, down from 17.12% in June.

Easing Credit Conditions for Businesses

If the MPC implements the anticipated rate cut, small and medium-sized enterprises (SMEs), which form the backbone of Nigeria’s economy, stand to gain the most. A lower MPR would reduce borrowing costs, helping businesses access more affordable financing to support growth, job creation, and operational expansion.

Financial analysts view this as a strategic move to stimulate domestic economic activity without undermining the recent gains in price stability.

Food Inflation Remains Sticky

Despite the broader decline in inflation, food prices remain a concern. Food inflation is projected to rise slightly to 21.56% in June from 21.14% in May, driven by seasonal supply pressures and logistic disruptions. Flash floods in Mokwa, a key transport link between northern food-producing regions and the southern markets, have interrupted supply chains. Additionally, the expiry of some food import waivers has constrained imports, putting further pressure on local prices.

Mixed Month-on-Month Trends

However, month-on-month inflation, a more current measure of price movements, is projected to rise to 1.99% in June, an annualized rate of 26.75%, up from 1.53% in May. Analysts attribute this short-term rise to seasonal demand spikes and temporary supply shocks rather than structural inflationary pressures.

Looking Ahead: A Test of Policy Endurance

With the National Bureau of Statistics (NBS) set to release official inflation figures in the coming days, the MPC faces a delicate decision. A 25bps cut would mark a cautious departure from the hawkish stance that characterized its recent meetings.

While the inflation outlook is improving, policymakers are likely to weigh external risks, food price volatility, and fiscal pressures before committing to a full-blown easing cycle. For now, the projected rate cut signals a cautiously optimistic outlook and a much-needed relief for businesses and households burdened by high borrowing costs.

The bigger question remains whether this is the start of a sustained policy easing trend or simply a tactical adjustment to support growth without compromising macroeconomic stability.

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