Central Bank Holds Steady on Rates as Currency Market Calms
Big shifts have been brewing in Nigeria’s financial landscape, but the Central Bank isn’t in a hurry to shake things up again. After a turbulent run of hikes through 2024, the Central Bank held its benchmark interest rate at 27.5% for the second meeting in a row. The message? Things are finally starting to settle, but nobody’s popping champagne yet.
The real eye-opener this cycle is how much closer Nigeria’s official foreign exchange (FX) rate has moved to the parallel market rate. For ages, there was a gulf between the two, with the official rate often lagging behind reality and fueling a grey market for hard currency. Today, that gap is almost invisible—N1,599 to the dollar officially, versus N1,600 on the street. That’s a rounding error, not an arbitrage opportunity.
Behind the scenes, the Monetary Policy Committee also kept key measures untouched: a Cash Reserve Ratio of 50% for deposit banks, 16% for merchant banks, and no changes to liquidity windows or interest rate corridors. The tone is cautious but quietly hopeful.
Reserves, Reform, and Investor Confidence on the Rise
CBN Governor Olayemi Cardoso says the signs are promising. Food price inflation, while still a burden for many, has begun to cool down. Petrol prices are holding steady, helping to dampen the chain reaction that usually sparks when fuel costs take off. And—this is a big one—the country’s balance of payments is looking better than it has in years, with external reserves swelling to $38 billion by the first quarter of 2025. Just 12 months earlier, those same reserves were stuck at $30 billion.
Foreign exchange flows are also picking up steam, with monthly turnover on the FX market jumping to $8.1 billion. Compare that to $5.5 billion early in 2024, and it’s clear there’s fresh energy in how dollars move through the system. Analysts are pointing fingers at a series of new reforms, especially the shift to the Bloomberg FX platform. This move made market pricing more transparent, attracting more autonomous inflows—not just from oil sales, but also from diaspora remittances and a growing lineup of non-oil exports. The efforts haven’t gone unnoticed outside Nigeria, either, with investors showing renewed interest in the local market.
The Nigeria Central Bank has been on a tear, having bumped up its key rates six times in 2024 to fight back against runaway inflation. That aggressive stance helped patch up credibility at home and abroad but left plenty of households and businesses feeling pinched. Now, this pause on rate changes signals a tentative belief that the worst may be behind Nigeria—for now.
Still, Governor Cardoso isn’t declaring victory. He’s made it clear that the CBN is watching inflation and price developments closely, ready to step back in if cracks start to show again. After all, a few months of good news doesn’t erase years of volatility. Everyone’s breathing a little easier, and while the future isn’t exactly mapped out, the outlook feels less shaky than it did not so long ago.
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