As the Central Bank of Nigeria’s Monetary Policy Committee (MPC) convenes today for its final meeting of 2025, financial markets are recalibrating for what could be the most consequential rate decision since the easing cycle began in September.

With inflation easing, the naira stabilising and global financial conditions turning more accommodative, many economists say the environment now favours further monetary relaxation. Yet, there is unusually sharp divergence over how deep the next rate cut should be.

At its last meeting, the MPC unanimously cut the Monetary Policy Rate (MPR) by 50 basis points (bps) to 27 per cent. The decision, according to CBN Governor Olayemi Cardoso, reflected five consecutive months of disinflation, forecasts of continued inflation decline, and the need to support economic recovery.

But the September meeting was far from a straightforward rate-cut exercise. Alongside the reduction, the Committee introduced new liquidity controls, adjusted key prudential ratios, and emphasised the importance of FX market stability and ongoing banking sector recapitalisation.

Furthermore, a new concern emerged at the last meeting: excess liquidity in the banking system.

Stronger government revenues, especially through higher FAAC allocations, have pushed large volumes of naira into the system, heightening risks of inflation if these funds freely circulate.

To curb this, the MPC imposed a steep 75 per cent Cash Reserve Ratio (CRR) on non-TSA public-sector deposits, aiming to sterilise recurring liquidity surges at the source and reduce reliance on costly open market operations (OMO).

Simultaneously, the CRR for commercial banks was reduced from 50 per cent to 45 per cent to free more lending capacity, while merchant banks’ CRR remained unchanged at 16 per cent. This asymmetric shift signals the MPC’s intent to separate liquidity management from inflation control while supporting credit expansion.

Ahead of today’s announcement, two major research houses, Afrinvest and Cordros Research, have released forecasts that share a similar direction but differ significantly in scale.

According to reports gathered by Daily Sun at the weekend, Afrinvest expects a measured 25–50bps cut while Cordros anticipates a more decisive 100bps cut, lowering the MPR to 26.0 per cent.

The disagreement stems from contrasting assessments of Nigeria’s inflation dynamics, FX resilience, and room for policy flexibility amid an improving global environment. With investor sentiment highly sensitive to policy signals this late in the year, understanding these divergent views is crucial for banks, asset managers and treasurers navigating end-year liquidity conditions.

Inflation moderating but not yet tamed

Inflation remains the single biggest anchor to Nigeria’s monetary stance. According to the National Bureau of Statistics (NBS), headline inflation rate dropped for the seventh consecutive month to 16.1 per cent year-on-year (y/y) in October from 18.0 per cent y/y in September, reflecting a high base year effect. Meanwhile, the month-on-month (m/m) CPI reading tells a different story as inflation accelerated 21bps to 0.93 per cent in the review month.

Breaking the CPI into components, the food inflation sub-basket rate eased further by 3.8ppts to a 20-month low of 13.1 per cent y/y (September: 16.9 per cent) due to improved harvests and Naira stability (up 11.7 per cent y/y to N1,460.06/$1). On a m/m basis, the food index recorded a 0.4 per cent deflation, albeit at a much softer pace compared to the 1.6 per cent decline in September, signaling a gradual easing of harvest-driven price relief.

Analysts at Afrinvest projected that the recent disinflation trend should persist through November, thanks to a combination of domestic and global factors. The resolution of the brief PENGASSAN strike is expected to restore supply in the energy basket, easing fuel-related price pressures. Meanwhile, Brent crude prices have softened globally, reducing imported energy cost pass-through. It expects month-on-month inflation to rise mildly by 1.1 per cent in November, while base effects pull year-on-year inflation down to 15.8 per cent. With the suspension of the proposed 15 per cent tariff on petrol and diesel imports, Afrinvest maintains that inflation risks are now sufficiently contained to justify a cautious rate cut.

Cordros, however, takes a more confident stance. It argues that inflation has decelerated more sharply than anticipated and that the disinflation trend is strong enough to support a bolder monetary easing. In its framing, the MPC’s recent caution is no longer necessary.

FX stability boosts confidence, inflows surge

Perhaps the strongest argument for easing in this cycle lies in the foreign exchange market, which has undergone a notable improvement in both confidence and liquidity. Cordros Research presents a detailed and data-rich assessment: total FX inflows into the Nigerian Foreign Exchange Market (NFEM) surged to a five-month high in October, equivalent to NGN5.15 trillion, reversing the prior month’s slump. Driving this recovery was a dramatic 120.7% month-on-month jump in foreign portfolio investment inflows, which accounted for more than half of total receipts. Local FX supply has also been buoyant, rising by 28.4% as individuals, corporates and exporters sold more into the market. With stronger inflows, the naira appreciated by 2.8% month-on-month, trading within a tighter range of N1,431 to N1,451/$1 so far in November. External reserves have risen in tandem, reaching $46.7 billion as of mid-November, an 18.5 per cent increase year-to-date. The market-friendly Eurobond issuance earlier in the month further reinforced confidence and supported reserves. Cordros argues that such FX resilience has eased one of the MPC’s biggest concerns, FX pass-through to inflation, and should give the Committee the latitude for a larger rate cut.

Afrinvest is broadly aligned on the FX narrative, though its framing is more measured. It highlights the stabilising effects of a steady exchange rate on imported inflation and overall price stability. While it acknowledges the positive impact of improved FX conditions, Afrinvest does not attribute as much policy space to these developments as Cordros does. The firm remains cautious, framing FX stability as a supportive, but not definitive, pillar for easing.

Resilient growth despite seasonal drags

Nigeria’s growth outlook also features prominently in both research houses’ assessments. Afrinvest expects Q3 GDP growth between 3.8 and 4.3 per cent, supported by easing cost pressures, improved business conditions and steady growth across key non-oil sectors. This performance, it argues, provides additional justification for a moderate stimulus via lower policy rates.

Cordros presents a more granular, sector-by-sector analysis. It estimates real GDP growth at 3.90 per cent year-on-year in Q3, slightly below the previous quarter’s 4.23 per cent due to seasonal weaknesses in agriculture and manufacturing, compounded by oil sector disruptions driven by the PENGASSAN strike and asset maintenance activities. Services, however, remain the standout performer, with strong expansions in ICT and financial services reflecting deeper digital adoption and rising transaction volumes. Looking ahead, Cordros projects a stronger Q4 driven by festive spending, main harvest season supply improvements, and recovering oil output, with full-year growth expected at around 3.8 per cent. Both firms agree on the broad narrative: growth is resilient, not overheating, and can benefit from policy support. The question, once again, is how much support the MPC is willing to provide at this stage.

Global backdrop

Cordros places significant weight on global financial conditions, arguing that Nigeria should seize the opportunity created by a synchronised moderation in global interest rates. Since September, the US Federal Reserve has cut rates again, by 25bps, bringing its policy rate to 4.0 per cent and ending its balance sheet runoff. Both the Bank of England and the European Central Bank have adopted more dovish tones, even if they have not yet executed fresh cuts, citing improved inflation dynamics. More importantly, geopolitical risks appear more contained than earlier in the year, and the recent US–China trade understanding has removed some near-term uncertainty, extending a truce into 2026.

Combined with stabilising global growth forecasts from the International Monetary Fund, these developments signal a more benign environment for emerging market currencies and risk assets. Afrinvest acknowledges improving global conditions but focuses more heavily on domestic fundamentals in its policy assessment. For Afrinvest, while the global environment supports risk assets, the MPC’s decision will remain anchored in Nigeria’s inflation path, FX performance and domestic growth outlook.

MPC outlook

Ultimately, the divergence between the two houses comes down to how proactive the MPC should be in responding to a more favourable macroeconomic landscape. Afrinvest sees a case for continuity and caution, noting that it expects an MPR cut of 25–50bps. According to the research and investment based firm, the rationale behind it is continued disinflation; stable FX; improved growth prospects; low immediate risks.

Cordros Research expects a stronger, more assertive shift. According to their analysts, it expects a MPR cut of 100bps as it sees sharper disinflation, robust FX liquidity, stronger reserves, supportive global backdrop, renewed scope to stimulate growth.

Both perspectives have merit. The MPC has been historically cautious, often opting for incremental movements even when conditions appear favourable. Moreover, inflation, though moderating, remains elevated in absolute terms, especially relative to the Committee’s medium-term targets. A deeper cut may risk signalling complacency too early in the disinflation cycle. On the other hand, the combination of stable FX, rising reserves, supportive global conditions and subdued consumer demand could justify a more assertive policy response. A 100bps cut would send a clear signal that the CBN is prioritising growth, especially as borrowing costs remain high for corporates and households.

Implications

For markets and banks, regardless of the magnitude, a rate cut appears all but certain. For fixed-income markets, Afrinvest notes that a modest cut would “sustain the bonds rally but with limited effect on equities,” while a deeper cut as expected by Cordros may extend duration appetite and drive stronger repricing in longer-tenor instruments. For banks, the MPC decision will influence funding costs, lending rates and liquidity management strategies heading into year-end. A deeper cut would likely compress yields further, impacting interest income but potentially stimulating credit demand.

Conclusion

The November MPC meeting arrives at a pivotal moment for Nigeria’s macroeconomic environment. The decision will reflect not just the latest data but also the Committee’s risk appetite, its tolerance for inflation volatility and its confidence in the sustainability of FX stability. Whether the MPC opts for a cautious 25–50bps reduction as Afrinvest suggests or a more forceful 100bps cut as argued by Cordros, the meeting will set the tone for Nigeria’s monetary trajectory in 2026. For bankers, investors and policymakers, all eyes are now on the MPC. (The Sun)