“We See the Potential”: Analysts Speak on CBN’s MPR Prediction for 2025
- Analysts projected that the interest rate of the Central Bank of Nigeria may be placed on hold for most of this year
- Over 800 basis points were added to the benchmark rate. The MPR was 27.50% at the end of December
- Given the accelerating rate of inflation, market watchers had anticipated that the CBN would hike rates last year
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Legit.ng journalist Zainab Iwayemi has 5-year-experience covering the Economy, Technology, and Capital Market.
Meristem Securities, an asset management firm, has predicted that the Central Bank of Nigeria's Monetary Policy Committee could maintain a hold position for the majority of this year.
Source: UGC
The firm recently published its 2025 full-year outlook, which included this.
As the apex bank continued to take a hawkish stance to combat inflation, the benchmark rate was raised by more than 800 basis points. As of December's end, The Punch reported that the MPR was at 27.50%.
Experts at Meristem Securities posited,
“Looking ahead, we see the potential for a less aggressive monetary policy stance, particularly as the monetary authority has hinted at its intention to evaluate the impact of prior policy measures. This outlook is further supported by our expectation of modest moderation in inflation during the year.
“Given the risk that premature easing could reverse the progress made in 2024 and exacerbate inflationary pressures, we expect the MPC to maintain a HOLD stance for most of 2025. A shift to a more dovish position may occur in the final quarter of the year. While unlikely, we cannot entirely rule out the possibility of an additional 100 bps hike in the MPR during the first quarter of 2025.”
Market observers had expected the CBN to raise rates in the previous year, particularly given the rising pace of inflation.
The MPR increased by a total of 8.75 percent to 27.50 percent in November 2024 from an MPR of 18.75 percent in January.
Along with rate changes, the MPC also implemented measures to control liquidity, such as increasing the cash reserve ratio to 16.00 percent for merchant banks and 50.00 percent for deposit money institutions.
Additionally, the asymmetric corridor around the MPR was adjusted from its original range of +100/-300 bps to +500/-100 bps.
According to Meristem, these liquidity policies had a positive effect because the growth of money market indicators decreased when compared to prior years. The broad money supply (M3) grew by 15.17% year-over-date (compared to 41.14 percent in 2023) and private sector credit decreased by 0.68 percent year-over-date (YtD), illustrating the effect of the high interest rate environment on the actual economy.
Net domestic credit increased by 15.58 per cent year-over-year (YtD) (compared to 40.93 per cent in 2023), while government credit rose at a quicker rate of 68.45% YtD (compared to 25.93% in 2023).
In H2:2024, the MPR continued to be in line with market rates as rising MPRs led to changes in market rates, especially for OMO instruments.
This alignment benefited foreign exchange inflows and contributed to increased exchange rate stability over the era by making rates more appealing to international investors.
At the current FirstBank Economic Outlook, economist Biodun Adedipe predicted that MPR will slightly decline in Q1 2025, with the bank lending rate continuing to be in the double digits and following MPR revisions.
Banks increase rate for customers to borrow money
Legit.ng reported that the average maximum lending rate in the banking sector rose to 31.06% in November 2024, the highest level since 2019 when it was 31.4%.
This followed the Central Bank of Nigeria's (CBN) most recent increase in its Monetary Policy Rate (MPR).
The average of the highest lending rates that Nigerian deposit money banks charge is referred to as the maximum lending rate.
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Source: Legit.ng
