Nigeria could see a significant shift in its monetary policy trajectory by 2025, as Stanbic IBTC Bank projects interest rate cuts of 150 to 200 basis points, with further reductions expected in 2026.
This comes on the back of easing inflation and broader economic reforms that are beginning to reshape the country’s economic landscape.
According to the bank’s latest Purchasing Managers’ Index (PMI) report, released in early July, inflationary pressures are expected to ease considerably over the next 18 months, paving the way for a looser monetary stance by the Central Bank of Nigeria (CBN).
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Muyiwa Oni, Stanbic IBTC’s Head of Equity Research for West Africa, stated that, with inflation softening and growth outlook improving, interest rates are likely to fall — unlocking growth across key sectors.
“We expect 150/200 bps rate cut in 2025 and 200/250 bps in 2026. These, along with structural reforms and the removal of protectionist policies, should support Nigeria’s medium-term growth path,” Oni said in the report.
The June PMI reading, which stood at 51.6, indicates continued expansion in private sector activity — albeit at a slower pace than the 52.7 recorded in May. This marks the slowest expansion in seven months and is largely due to sluggish performance in manufacturing, which saw a sharp drop in output. Despite this deceleration, business confidence remains high, fueled by optimism over future investments, economic reforms, and expected improvements in the macroeconomic environment.
Economic Outlook: Growth, Investment, and Post-Rebasing Boost
Stanbic IBTC expects Nigeria’s economy to grow by 3.5% in 2025, a modest but stable expansion rate. However, with Nigeria planning a GDP rebasing exercise, the growth outlook could rise to 4.2%, as the rebasing would provide a more accurate reflection of economic activity, including expanding digital and service sectors.
This optimism stems from a combination of factors — including stronger fiscal coordination, improved foreign exchange availability, and the dampening effect of ongoing reforms on inflation and the cost of doing business.
Inflation Declining, But Still Elevated
Data from the National Bureau of Statistics shows that headline inflation fell to 22.97% in May 2025, down from 23.71% in April — the second consecutive monthly decline. Though inflation remains well above the CBN’s long-term target range of 6–9%, the recent trend offers hope of a turnaround, especially as food inflation — a key driver — begins to ease due to better harvests and reduced logistics costs.
The Monetary Policy Committee (MPC) of the CBN has paused its aggressive tightening stance for the second time this year, holding the benchmark interest rate at 27.50% in its last two meetings. The move signals a shift toward a wait-and-see approach as inflation moderates and economic activity stabilizes.
Analysts believe the next MPC meeting, scheduled for July 21–22, 2025, will be crucial in shaping the monetary policy outlook for the rest of the year. A sustained decline in inflation, alongside continued implementation of fiscal and structural reforms, could convince the MPC to initiate the first rate cut cycle since 2021.
Policy Challenges and Risks
While optimism abounds, Stanbic IBTC cautions that several risks could still undermine the recovery:
- Persistent exchange rate volatility could reignite inflation.
- Rising debt service costs could squeeze fiscal space.
- Political resistance to subsidy reforms or tax increases may stall fiscal consolidation.
- Weak infrastructure and insecurity could hinder investment inflows.
Nevertheless, the anticipated interest rate cuts are expected to improve credit conditions, stimulate consumer spending, and attract more private investment — all of which are necessary to boost Nigeria’s fragile recovery.
In summary, Nigeria appears to be on a cautious but hopeful path toward economic normalization, with falling inflation, structural reforms, and rate cuts on the horizon. The months ahead will be critical in determining whether these early signals translate into sustained, inclusive growth.