..Say MPR retention at 27.5% will boost investor confidence, fx market stability
By Charles Ebi
Central Bank of Nigeria’s decision to retain the Monetary Policy Rate, MPR, at 27.5% has received support from leading investment analysts, who described the move as a cautious but strategic approach to managing inflation and maintaining Foreign Exchange ,FX, market stability.
The comments followed the 301st meeting of the Monetary Policy Committee ,MPC, held on Tuesday, July 22, 2025, where CBN Governor Olayemi Cardoso explained that sustaining the current rate was necessary to preserve the dis-inflationary momentum and mitigate lingering price pressures in the economy.
The experts speaking with journalists noted that the CBN’s high interest rate strategy serves a dual purpose-containing inflation and attracting foreign portfolio inflows to support foreign exchange liquidity.
Despite declining yields in the fixed income market, they said investor confidence remains strong, with foreign players still engaging in sovereign securities, even at yields below the Monetary Policy Rate ,MPR.
The experts cautioned against policy changes amid global and domestic uncertainties threatening economic recovery.
They added that improved FX liquidity and stable exchange rates support a policy hold, allowing the economy to stabilize without increasing market volatility.
Investment banker and stockbroker, Mr. Tajudeen Olayinka, noted that the CBN’s high interest rate regime serves a dual purpose curbing domestic inflation and attracting foreign portfolio investments ,FPIs, that bolster FX liquidity.
He pointed out that even with declining yields in the fixed income market, foreign investors continue to purchase sovereign securities at rates below the MPR, reflecting long-term confidence in Nigeria’s macroeconomic trajectory.
Olayinka added that by signaling higher yields, the CBN is deliberately preserving investor interest, with market convergence expected as inflation continues to ease.
Olayinka explained that the apex bank’s monetary policy stance reflects a dual objective: tackling inflationary pressure on the domestic front while supporting liquidity in the foreign exchange ,FX, market through continued interest from foreign investors.
According to him, “The CBN is essentially more concerned about keeping inflation in check, while at the same time using a high interest rate regime to keep up the inflow from foreign portfolio investors who are helping to provide liquidity to the foreign exchange market”.
He noted that despite recent market-driven moderation in yields within the fixed income space, foreign investors remain confident in the Nigerian sovereign debt market, even purchasing instruments at yields below the Monetary Policy Rate ,MPR. This, he said, is evidence of investor willingness to stay engaged in anticipation of long-term macroeconomic stability.
“Investors, including foreign portfolio investors, are willing to buy sovereign securities at yields below MPR, but the CBN is still communicating retention of higher yields to them”, Olayinka explained. “It’s all in a bid to meet those two critical objectives inflation control and FX market support”.
He added that, over time, a natural convergence between policy rates and market yields will occur as inflation moderates and investors continue to reprice fixed income instruments accordingly.
Echoing this sentiment, Mr. David Adonri, Managing Director of Highcap Securities Limited, warned against abrupt policy shifts, citing persistent global and domestic risks such as the fallout from U.S. trade tensions, Middle East instability, and rural insecurity in Nigeria.
He stressed that maintaining the current policy rate would support economic recovery while easing pressure on the capital market, which is already exhibiting signs of overheating.
Adonri noted that although macroeconomic indicators are showing signs of improvement, several underlying threats continue to challenge the country’s economic stability.
Among these are external shocks emanating from global trade tensions — particularly those triggered by the former U.S. President Donald Trump’s tariff policies and the prevailing instability in the Middle East, which has continued to cast a shadow over global economic performance and investor confidence.
Domestically, Adonri highlighted the ongoing disruptions in Nigeria’s rural economy caused by terrorist activities, warning that these pose significant risks to monetary stability. He emphasized that such insecurity undermines agricultural productivity and food supply chains, which are key components of Nigeria’s inflation dynamics and economic resilience.
“The Monetary Policy Committee ,MPC, must remain cautious in its decisions”, Adonri stated, suggesting that maintaining the Monetary Policy Rate ,MPR, at its current level may be the most prudent course of action.
According to him, keeping the rate unchanged would help protect the economy’s nascent recovery from potential shocks that could result from premature tightening or loosening of policy.
He also cautioned that Nigeria’s capital market appears to be showing signs of overheating due to speculative activities and excess liquidity. A stable interest rate environment, he argued, would help moderate investor behavior and reduce pressure on financial assets.
“In the current environment, it is better to err on the side of caution. Leaving the MPR unchanged could serve the dual purpose of safeguarding the modest economic recovery and cooling the capital market, which is becoming increasingly volatile”, Adonri explained.
Similarly, CEO of Arthur Steven Asset Management, Mr. Olatunde Amolegbe pointed to rising food inflation driven by seasonal and geopolitical factors but emphasized that improved FX liquidity and a stable exchange rate provide strong grounds for holding rates steady.
Amolegbe said he expected that the Central Bank of Nigeria’s Monetary Policy Committee ,MPC, will maintain the current policy rate at the meeting, citing competing economic considerations.
He noted that recent economic developments reflect a delicate balancing act for policymakers, particularly in the face of resurging food inflation and rising global energy prices, on one hand, and relative foreign exchange market stability and improving liquidity conditions, on the other.
“It appears to me that we are seeing a resurgence in food inflation due to seasonal effects, ongoing security issues, as well as increased energy costs linked to the Israel-Iran crisis”, he explained. “On the other hand, the relatively stable FX exchange rate should also be a major consideration”.
He noted that while inflationary pressures especially food inflation remain a concern, the Central Bank may not be compelled to implement further tightening measures given the recent improvements in exchange rate stability and capital market liquidity.
“Given the trade-offs before the MPC, my expectation is that the Committee will either maintain the MPR at the current rate or keep all policy parameters unchanged”, Amolegbe stated.
The experts collectively agree that the CBN’s tight stance, though costly, remains vital in navigating inflation risks without destabilizing investor sentiment or market fundamentals.
Their comments come amid growing debate around the CBN’s tight monetary policy stance, especially as the economy contends with high borrowing costs, a volatile FX market, and efforts to stimulate sustainable growth.
The CBN has maintained an aggressive inflation-targeting approach, with the Monetary Policy Committee ,MPC, raising rates several times in recent quarters to stem inflationary pressures.
