Slow and steady decline: Nigeria's inflation drops to 21.8% for the fourth consecutive time, yet persistent food price increases persist
Central Bank of Nigeria Anticipated to Lower Interest Rate Amid Inflation Slowdown
The Central Bank of Nigeria (CBN) is expected to cut its benchmark interest rate from the current 27.5% to around 25.5% by the end of 2025, according to a consensus among economists. This expectation is based on recent trends showing a slowdown in headline inflation, which declined to 21.88% year-on-year in July 2025, down from 22.97% in May 2025.
The CBN has maintained a hawkish stance this year, keeping the benchmark rate at a record high of 27.50% to tame inflation. However, the moderation in the headline rate was supported by a decline in global and domestic energy prices, as well as the pass-through effects from last year's fuel subsidy removal and currency devaluation.
Despite the statistical cooldown, pressure remains on the ground, particularly in food costs. Food inflation, a key driver of hardship for millions of Nigerians, increased to 22.74% in July 2025 from the previous month. This persistently high food inflation could temper the pace or magnitude of easing.
The Monetary Policy Committee (MPC) of the CBN, which sets the benchmark rate, has prioritized the control of inflation over any potential easing of the benchmark rate. Any easing of the benchmark rate is not expected until inflation is firmly on a downward trajectory. The MPC is focused on taming inflation and ensuring it is firmly on a downward trajectory before considering any easing.
The consensus among economists is that the rate will be held steady to ensure inflation is firmly on a downward trajectory. Economists do not expect the MPC to make any major changes to the benchmark rate in the near term. A dovish pivot from the MPC at its next meeting is considered highly unlikely.
The stabilization of the economy is also a factor influencing the CBN’s policy decisions. External reserves increased slightly (to about $40.7 billion), oil prices stabilized, and asset growth is expected to slow. These factors, along with the improving inflation outlook and currency stabilization, support the expectation of a rate cut by the end of 2025.
In summary, while the CBN has held rates steady recently due to elevated inflation, the recent slowdown in headline inflation combined with more stable currency conditions and easing external pressures is anticipated to provide the CBN room to reduce the benchmark rate to approximately 25.5% before the end of 2025. The persistent high food inflation might moderate how aggressively the CBN eases policy, but the overall trend points toward a gradual monetary loosening.
[1] Fitch Solutions [2] National Bureau of Statistics (reported on July 20, 2025, in Abuja) [3] Economist poll [4] CBN's Monetary Policy Committee meeting minutes (May and July 2025)
- The anticipated rate cut by the Central Bank of Nigeria (CBN) could potentially stimulate growth in various businesses and sectors, as lower interest rates usually make borrowing more affordable, thereby encouraging investments and boosting economic activities.
- The finance ministry may need to carefully assess the impact of the anticipated interest rate reduction by the Central Bank of Nigeria (CBN), taking into account its effects on inflation, exchange rate stability, and government borrowing costs, to ensure a balanced economic recovery while maintaining fiscal sustainability.
