Uwaleke: Why MPC May Not Cut Interest Rate in H2 Despite FX Stability
Ndubuisi Francis in Abuja
A finance expert and President of the Capital Market Academics of Nigeria (CMAN), Prof. Uche Uwaleke has submitted that despite FX stability and slowing core inflation, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will unlikely ease interest rates in the second half (H₂) of 2025, due to a number of variables.
Uwaleke, who spoke at a webinar
themed, “Resilience, Reform, and Risk: Nigeria’s Capital Market at Mid-Year,” adduced reasons why the key policy rate may likely remain unchanged in the second half of the year.
The MPC had at its recent 301st meeting retained the Monetary Policy Rate (MPR) at 27.5 per cent, the asymmetric corridor around the MPR at +500/-100 basis points, and the Cash Reserve Ratio (CRR) of Deposit Money Banks (DMBs) at 50 per cent and that of merchant banks at 16 per cent, while the Liquidity Ratio was unchanged at 30 per cent.
According to Uwaleke, the compelling variables which may likely make the MPC retain the rates in the second half of the year include sustained Federation Account Allocation Committee (FAAC)-induced liquidity pressures and pass-through effect to exchange rates.
He also cited the need to preserve real returns and attract portfolio flows, as well as the International Monetary Fund”s
(IMF) recommendation for tight monetary conditions in its recent Article IV Consultation report, which advised maintaining positive real interest rates to restore macroeconomic stability.
According to him, while inflation is projected to moderate slowly, declining further to 20 per cent by December 2025, the MPC is likely to retain MPR at 27.5 per cent in H2 2025.
“Monetary policy is expected to remain tight through year-end 2025, with no MPR cuts likely, unless inflation slows dramatically,” he said, quoting the IMF.
He noted that security challenges and governance bottlenecks could constrain private sector response to reforms unless implementation accelerates across states.
Providing an outlook for FX reserved and forex rate, Uwaleke observed: “As of 28th July 2025, Nigeria’s gross external reserves reached approximately $39 billion, providing an estimated 9 months of import cover.
“The naira is trading at around ₦1,533 per USD in the official Nigerian Foreign Exchange Market (NFEM) and similarly around ₦1,530–₦1,537 in the parallel market, indicating near convergence of the two rates Analysts from Renaissance Capital estimate that, even with convergence, the naira is still overvalued by about 26% compared to its historical real effective exchange rate average.
“While the naira appears slightly overvalued, its relative stability—backed by recent reforms—may support investor confidence in H₂ 2025.”
According to him, the naira is likely to maintain stability within narrow range, adding that stability in the exchange rate will be supported by the CBN FX market reforms and sustained interventions.
He observed that
$1.1 billion Eurobond bullet repayment due by November will have a subdued impact on FX reserves.
