Rates on ice

The Central Bank of Nigeria held its benchmark lending rate at 27.50%.

The Central Bank of Nigeria (CBN) has held its benchmark lending rate at 27.50% for the first time in nearly three years, citing exchange rate stability and moderating petrol prices. Governor Olayemi Cardoso announced that key policy rates, including the Cash Reserve Ratio (CRR) and liquidity ratio, remain unchanged. Meanwhile, Nigeria’s GDP grew by 3.84% in the fourth quarter of 2024, its highest in three years, driven by a strong services sector. Annual GDP growth reached 3.40%, up from 2.74% in 2023, despite sluggish expansion in agriculture and industry. The economy shows resilience amid global uncertainties.

The decision to hold off on a rate hike was expected, as the rebasing of the inflation basket has now aligned it with interest rates. Alongside the imminent GDP rebasing, the strongest growth in three years, rising oil production, and recent stability in the foreign exchange market, this has bolstered the CBN’s confidence to shift cautiously towards a more expansionary stance. However, the numbers beneath these positive indicators tell a more cautious story.

While necessary, rebasing inflation and GDP does not address the structural drivers of high inflation or the near-halving of GDP from its previous base. Growth figures are significantly influenced by base effects and driven by a cyclical and volatile services sector. Meanwhile, key sectors such as industry and agriculture are slowing, exposing weaknesses in the economy’s fundamentals.

Should Nigeria ride this wave of optimism? Yes. But it must also confront its structural issues—where it has often faltered. Since its appointment in September 2023, the current CBN administration has taken bold measures, including the naira devaluation and managed currency floating, alongside consistent hikes in the policy rate to curb inflationary pressures. The CBN has now drawn a line in the sand at an exchange rate of ₦1,500 to the dollar. With inflation trending down to 24.5% in January 2025—albeit following the rebasing of inflation figures—the MPC has adopted a wait-and-see approach on interest rates, with adjustments likely shifting towards cuts later in the year.

Meanwhile, the GDP figures suggest that the economy has weathered the storm brought on by the Tinubu administration’s sweeping policy changes over the past two years. The non-oil sector remains resilient, buoyed by services, while agriculture and manufacturing appear to have rebounded. If Nigeria can effectively channel subsidy savings into critical areas, it may exceed growth expectations in 2025.