Nigeria Halts Interest Rate Hikes as Inflation Methodology Shifts

The Central Bank of Nigeria (CBN) has put a pause on its aggressive interest rate hikes, maintaining the benchmark rate at 27.5% following the 299th meeting of its Monetary Policy Committee (MPC). This decision comes amidst a significant rebase of the consumer price index (CPI) methodology, which has led to a substantial drop in reported inflation. The National Bureau of Statistics (NBS) unveiled its rebased CPI data on January 18, 2025, using 2024 as the base year, replacing the 2009 base year. This change in methodology resulted in a significant decline in reported inflation, from 34.8% in December 2024 under the previous methodology to 24.5% in January 2025.

The CBN's decision to halt interest rate hikes has raised questions about the potential long-term effects on Nigeria's economic growth and stability, given the current inflation trends and currency depreciation. While pausing rate hikes could provide stability in the exchange rate and encourage private consumption, it may also lead to a resurgence in inflation if not managed properly. High inflation erodes purchasing power, discourages savings, and increases uncertainty, all of which can hinder economic growth.



The CBN's decision to maintain the interest rate may also impact investor confidence and foreign capital inflows into the Nigerian market. While a stable interest rate provides a sense of stability and predictability for investors, high interest rates can deter investment and lead to capital flight if the market is perceived as risky or unattractive. It is essential for the CBN to balance its monetary policy to support economic growth while maintaining price stability.



In conclusion, the CBN's decision to halt interest rate hikes amidst the rebase of the CPI methodology has raised questions about the potential long-term effects on Nigeria's economic growth and stability. While pausing rate hikes could provide stability in the exchange rate and encourage private consumption, it may also lead to a resurgence in inflation if not managed properly. The CBN must carefully monitor inflation trends and currency depreciation to ensure that the pause does not lead to a resurgence in inflation or currency depreciation. It is crucial to maintain a balance between promoting economic growth and controlling inflation to achieve long-term stability.