CBN Rate Hold: Nigerians Face Prolonged High Borrowing Costs – Experts Warn

Despite the Central Bank of Nigeria’s (CBN) decision to keep its benchmark interest rate unchanged, economic experts warn that Nigeria may be staring at a prolonged period of high borrowing costs, as stubborn inflation, rising geopolitical tensions and shifting global capital flows continue to threaten growth and cloud the economic outlook.

At the end of its 305th Monetary Policy Committee (MPC) meeting on Wednesday, the CBN retained all key monetary policy parameters, Pinnacle Daily earlier reported.

It kept the Monetary Policy Rate (MPR) at 26.5 per cent and maintained the Cash Reserve Ratio and the standing facilities corridor.

According to the CBN Governor, Olayemi Cardoso, the decision reflected evolving domestic and global conditions, including moderating inflation, improving growth and lingering geopolitical risks.

Rewane Flags Global Risks, Foreign Capital Rotation

Speaking at the Alpha Morgan Economic Review webinar on Thursday, Economist Bismarck Rewane said the decision to hold rates was in line with a broader global trend of monetary caution.

He, however, stressed that investors should focus on the changing global interest rate environment and its implications for Nigeria, noting that Nigeria was not alone in the rate pause.

“So yesterday we had the MPC meeting. We also had the Ghanaian MPC meeting as well. Ghanaians held, we held,” he said.

However, he described the market response to the CBN decision as unusual after the Nigerian stock market fell 1.02 per cent despite relative exchange rate stability.

“The initial reactions after the central bank announcement were very simple. We saw the stock market actually lose 1.02 per cent, which is normally strange,” Rewane said.

He linked the development partly to portfolio shifts by foreign investors toward higher-yielding United States bonds.

“Our understanding… is that a lot of FPIs (foreign portfolio investments) that were going to come in, or are here already, are rotating their portfolios in favour of US 10-year bonds, which are yielding almost 5.1 per cent,” he said.

According to Rewane, Nigeria would need a mix of elevated interest rates, strong corporate earnings and policy consistency to retain foreign capital.

“One, Nigeria will have to use interest rates, use strong earnings, and use policy consistency to keep not only to attract investment flows, but to prevent portfolio flows from going out,” he said.

Analysts See Inflation, High Rates Staying Longer

Analysts at CSL Stockbrokers and Meristem Securities said the MPC’s cautious stance reflected growing inflation concerns and uncertainty arising from Middle East tensions.

Speaking on the Arise Television programme on Thursday, Omobola Adu, Economist at CSL Stockbrokers Limited, said the external backdrop and recent inflation trend made a hold decision the most likely outcome.

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“If you look at the backdrop of where we are coming from, the external environment is challenging, inflation rising for two consecutive months,” he said.

“The best approach that the MPC was likely going to take is a cautious approach — wait and see how things develop in the coming months.”

While higher oil prices could support Nigeria’s external reserves and current account position, Adu warned that inflation remained the major concern.

“Inflation is the real place where we are going to see the pain in this whole crisis,” he said.

“We are now in a different reality,” Adu said. “Inflation is likely going to remain on the high side… probably averaging between 15 and 16 per cent this year.”

He pointed out that expectations of aggressive rate cuts had weakened, meaning businesses and households could face high borrowing costs for longer.

“The pain is likely going to last for much longer,” he said, adding, “Interest rates may come down later, but the magnitude of the cuts is not going to be as we had expected.”

On her part, Favour Kenneth, Investment Research Analyst at Meristem Securities, said her firm had also anticipated a hold decision because of “inflation rising mainly due to external shocks.”

“We largely expected the monetary policy to maintain a hold stance, watch and see the impact of the whole Middle East tension on prices before taking another decision,” she said.

Kenneth argued that geopolitical tensions had already altered inflation dynamics through rising energy costs.

“We saw softer impact, but not relatively muted,” she said, warning that maintaining elevated rates for longer could weaken economic activity.

“Double-digit rates are really elevated,” she said. “Being held for longer due to the global shock is extending this duration of elevated rates.”

According to her, sustained high borrowing costs could dampen consumer spending, discourage corporate expansion and slow growth, although reforms and stronger external buffers have improved resilience.

“Overall, when we combine all these factors, I think we’re still in a good position,” she added.

Yusuf Says Tight Monetary Policy Can’t Solve Structural Inflation

Dr Muda Yusuf, a renowned economist, also hailed the CBN’s decision, describing it as a realistic response to prevailing economic conditions.

He said the MPC outcome reflected “a pragmatic, measured and increasingly sophisticated understanding of the inflation dynamics currently confronting the Nigerian economy.”

According to Yusuf, inflationary pressures in Nigeria are being driven mainly by structural and external factors rather than excess domestic demand, including geopolitical tensions involving Iran, Israel and the United States that have disrupted energy markets and raised costs across the economy.

“Inflation at this time is being driven more by supply-side disruptions than by excess domestic demand,” Yusuf said.

He argued that monetary tightening alone cannot resolve these pressures because “monetary policy is a powerful stabilisation instrument, but it cannot repair supply chains, resolve geopolitical conflicts or eliminate structural bottlenecks in production and distribution.”

Yusuf warned that excessive tightening could hurt economic recovery.

“Excessive tightening at this stage could suffocate productivity, weaken industrial recovery, constrain investment appetite and undermine employment generation,” he said.

He also praised the CBN’s monetary management and relative exchange rate stability, calling it “one of the most important anchors of macroeconomic confidence in the economy.”

According to Yusuf, the apex bank’s recent approach signals “a transition from crisis management to confidence management,” which is critical for rebuilding investor confidence and macroeconomic credibility.

He further described the MPC outcome as “a balanced and intelligent policy calibration” aimed at supporting not only inflation control but also investment, productivity, competitiveness and sustainable job creation.