Monetary Policy Rate at 27.50% in May 2025

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) convened for its 300th meeting on the 19th and 20th of May 2025, during which it decided to maintain the Monetary Policy Rate (MPR) at 27.50%, uphold the Cash Reserve Ratio (CRR) for Deposit Money Banks (DMBs) at 50%, and keep the Liquidity Ratio at 30%.

This stringent monetary approach was implemented to address inflation and stabilize the economy. Committee members observed that the increase in inflation was primarily caused by elevated electricity prices and ongoing pressure from foreign exchange demand. They also raised concerns regarding the recent drop in crude oil prices, which is linked to heightened production by non-OPEC member nations. The current MPR represents the committee’s second consecutive hold since January 2025.

Although the high MPR and CRR are effective in mitigating demand-side inflation by decreasing excess liquidity within the financial system, inflation in Nigeria is predominantly supply-driven. Consequently, monetary tightening by itself may not suffice. Additionally, with a CRR set at 50%, domestic banks are mandated to retain a substantial portion of their funds with the CBN, which restricts their lending capabilities. Therefore, the focus should not solely be on monetary policies but should also include fiscal policy measures.

This encompasses investments in energy infrastructure to enhance electricity supply, which would subsequently reduce companies’ expenditures on alternative energy sources. Furthermore, the government ought to reinforce the development bank to facilitate targeted lending for micro, small, and medium-sized enterprises, thereby enhancing production and ultimately helping to alleviate inflation.