Monday – Capital Economics has forecasted that Nigeria’s Central Bank (CBN) will likely begin reducing interest rates from May 2025, with expectations for the policy rate to decrease by 400 basis points to 23.50% by the end of the year.
This outlook is based on the anticipation that moderating petrol prices and a more stable naira will lead to a resumption in the disinflation process.
However, the firm also cautioned that the CBN would remain cautious due to inflationary risks associated with the government’s fiscal policy.
The inflation rate in Nigeria reversed its disinflation trend towards the end of 2024, with headline inflation climbing to 34.9% year-on-year in November, surpassing the peak of 34.2% observed in June.
A significant factor in this increase was the over 70% hike in petrol prices since August, driven by fiscal pressures and resulting in broader impacts on consumer prices.
The firm predicts that inflation could drop below 20% by the end of the year, which is more optimistic than the consensus estimate of 21.4%.
Despite these factors, Capital Economics does not expect inflation to return to single digits in the near term, as it has remained above 10% since 2016.
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