Analysts Project Rate Cuts as Cooling Inflation, Stronger Naira Give CBN Room to Ease
Nume Ekeghe
As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) commences its meeting today, analysts are projecting the start of a cautious easing cycle, underpinned by sustained disinflation, improved exchange rate stability and moderating food prices.
Expectations of a rate cut are anchored on January’s inflation data, which showed headline inflation easing to 15.10 per cent year-on-year, extending the disinflation trend seen in recent months.
The moderation in both core and food inflation, alongside the naira’s relative stability and appreciation against the dollar year-to-date, has strengthened confidence that price pressures are gradually receding. Analysts argue that with inflation surprising on the downside and liquidity conditions still tightly managed, the MPC now has room to recalibrate its previously aggressive tightening stance.
Head of Financial Institutions Ratings at Agusto & Co,. Ayokunle Olubunmi,said while a rate cut is likely, the Committee would tread carefully to avoid reigniting inflationary pressures.
“I think there will be some cuts, but I don’t think it’s going to be significant, 50 basis points or a maximum of 100 basis points. Even if there are adjustments to the Cash Reserve Ratio (CRR), it will likely be minor,” he said.
He added that fiscal dynamics could also shape the MPC’s posture, particularly as government capital spending is expected to increase and political activities gather pace ahead of elections. In his view, the Committee would seek to balance growth support with the need to prevent excess liquidity from undermining recent macroeconomic gains.
Senior Market Analyst at FXTM, Lukman Otunuga, also maintained that the case for easing has strengthened.
“In a welcome development for Nigeria’s economy, inflation unexpectedly slowed in January, with prices rising 15.1 per cent year-on-year. This represented a slight decline from 15.2 per cent in December and was well below the 19.5 per cent median estimate,” he said.
According to him, lower food prices have helped offset broader inflationary pressures, while the naira’s roughly eight per cent appreciation against the dollar year-to-date reinforces the argument for a rate reduction.
“The question is not if, but how much the CBN will slash interest rates,” he added, referencing the Committee’s decision to hold the benchmark rate at 27 per cent at its last meeting.
But analysts at Meristem similarly expect a dovish tilt. The analysts said improving domestic macroeconomic indicators particularly sustained disinflation and currency stability provide justification for easing, even as global central banks adopt a wait-and-see approach.
“We believe we are at an inflection point. The combination of sustained disinflation and currency stability suggests the MPC is gaining confidence that the worst of the inflation cycle is behind us. While near-term risks have not disappeared, we expect the MPC to lean dovish, while keeping a leash on liquidity and remaining cautious of potential risks to the accumulated gains on macroeconomic variables.
“We expect the Committee to cut the MPR by 100bps to 26.00 per cent. Adjust the Asymmetric Corridor from +50bps/-450bps to +200/-300bps around the MPR and retain Liquidity Ratio at 30.00 per cent.Maintain the CRR at 45.00 per cent for Deposit Money Banks, 16.00 per cent for Merchant Banks, and 75.00 per cent for non-TSA public sector deposits,” they said.
