CBN holds interest rates steady to balance growth and price control

In a closely watched decision, the Central Bank of Nigeria’s Monetary Policy Committee (MPC) has opted to maintain interest rates, signaling a cautious stance amid economic uncertainty. While aimed at stabilizing inflation and the naira, the move has direct implications for everyday Nigerians — from loan costs to savings returns — and sends a clear message about the bank’s balancing act between growth and price control.

The Monetary Policy Committee (MPC) of the Central Bank (CBN) held its key monetary policy rate steady amid developments in the global and domestic economies and assessment of the outlook for inflation.

The 12-member monetary policy committee maintained the benchmark rate at 27.5%, Governor Olayemi Cardoso said at a briefing in the capital, Abuja, on Tuesday.

“The decision was premised on the need to sustain the momentum of disinflation and sufficiently contain price pressures,” Cardoso said. “Monetary policy will need to maintain its current stance until risks to inflation recede sufficiently.”

Of course, the Abuja Based Bank had been hiking interest rates amid a red-hot inflation exacerbated by the removal of subsidy on fuel and the unification of the foreign exchange market.

As inflation has been falling in the last couple of months, the policy maker was conservative as it seeks to make Naira assets attract while contemporaneously attracting foreign investment.

The total dollar inflows into the official window of the Nigerian foreign exchange (FX) market rose to $26.40 billion, in the First Half (H1) of 2025, more than 80% of the 2024 Full year (FY) figure.

This strong performance was primarily driven by sustained Foreign Portfolio Investment (FPI) inflows of $8.89bn – higher than the $8.53bn received throughout 2024, data from FMDQ shows.

The central bank’s monetary policy rates (MPR), otherwise known as the interest rates, impacts the prime rate. The prime rate is the interest rate that banks use when lending to their most creditworthy customers. It serves as a benchmark for various other interest rates, including those on mortgages, credit cards, and other loans.

When the central bank hikes rates, the prime rate tends to rise, when the Apex bank cuts, it usually falls, too.  In Nigeria, CBN is the primary entity that monitors and influences the prime rate.

So, how are savers affected by movement in rates? Interestingly, when the central banks continues to raise interest rate, lender raise deposit rates to compete for customer cash, meaning savers generally benefit from higher returns on their savings accounts and other interest-bearing investments.

On the other hand, borrowers generally face higher borrowing costs. This means it becomes more expensive to take out loans, use credit cards, or obtain mortgages. Consequently, individuals and businesses may reduce spending and investment due to increased borrowing expenses.

Basically, the central bank’s monetary policy also influences the mortgage rates. For instance, when a central bank raises interest rates, mortgage rates tend to increase, and conversely, when a central bank lowers interest rates, mortgage rates tend to decrease.