Nigeria’s inflation to average at 22% in 2025 if CBN holds tight monetary policy – World bank
The World Bank projects that Nigeria’s headline inflation will average 22.1% in 2025, a decline from 26.6% in 2024, contingent upon the Central Bank of Nigeria (CBN) maintaining its current tight monetary policy stance. This forecast reflects the anticipated effects of ongoing macroeconomic reforms and the lagged impact of previous interest rate hikes aimed at stabilizing the economy.
In 2024, Nigeria grappled with soaring inflation, which peaked at 34.8% in December, driven by factors such as the removal of fuel subsidies and the devaluation of the naira. In response, the CBN implemented a series of monetary tightening measures, culminating in a benchmark interest rate of 27.5% by February 2025. These actions were aimed at curbing inflationary pressures and restoring macroeconomic stability.
The CBN’s Monetary Policy Committee (MPC) has expressed cautious optimism regarding the inflation outlook, citing factors such as improved security in food-producing regions, stability in the foreign exchange market, and the anticipated moderation of fuel prices. However, the MPC also acknowledges potential risks, including exchange rate volatility, growth in money supply, and escalating insecurity, which could undermine the inflation trajectory.
The World Bank’s inflation forecast aligns with the CBN’s commitment to achieving price stability. Governor Olayemi Cardoso has emphasized the importance of maintaining a tight monetary policy to anchor inflation expectations and support economic growth. The central bank’s strategy includes not only interest rate adjustments but also measures to enhance transparency and efficiency in the foreign exchange market, such as the introduction of the Electronic Foreign Exchange Matching System (B-Match) and the Nigeria Foreign Exchange Code.
Despite these efforts, the inflation outlook remains subject to various uncertainties. The International Monetary Fund (IMF) projects a higher average inflation rate of 26.5% for Nigeria in 2025, highlighting the challenges posed by structural factors and external shocks. This divergence underscores the complexity of Nigeria’s inflation dynamics and the need for coordinated policy responses.
In addition to monetary policy, fiscal reforms play a crucial role in shaping the inflation landscape. The government’s efforts to enhance revenue collection and reduce fiscal deficits are expected to complement the CBN’s initiatives, fostering a more conducive environment for economic stability. However, the success of these reforms depends on effective implementation and sustained political will.
Looking ahead, the CBN’s ability to navigate the delicate balance between controlling inflation and supporting economic growth will be pivotal. While the projected decline in inflation offers a glimmer of hope, the central bank must remain vigilant and responsive to emerging risks to ensure that the gains achieved are not eroded.
In conclusion, the World Bank’s projection of a 22.1% average inflation rate for Nigeria in 2025 reflects cautious optimism, contingent upon the continuation of tight monetary policy and successful implementation of structural reforms. Achieving this target will require concerted efforts from both monetary and fiscal authorities, as well as resilience in the face of potential economic shocks.