CBN holds MPR at 27% as inflation eases, 16 banks cross recapitalisation hurdle

...Foreign-exchange reserves rise 9.19% to $46.7bn

...Nigeria records N2.06trn VAT in Q2 2025 — NBS

By Seun Ibiyemi

The Central Bank of Nigeria has left the Monetary Policy Rate unchanged at 27 per cent, explaining that earlier tightening measures are beginning to show results and that maintaining stability is essential for the next phase of economic recovery. The announcement came on Tuesday as the bank also confirmed that 16 banks have fully met its recapitalisation threshold, signaling steady progress across the industry ahead of the March 2026 compliance deadline.

Governor Olayemi Cardoso disclosed the decisions at the end of the two-day Monetary Policy Committee meeting in Abuja. He reported that headline inflation has eased for the seventh consecutive month, dropping to 16.05 per cent in October from 18.02 per cent in September. “This time last year we were talking of 34 plus and now we are down to 16,” he noted.

Alongside retaining the benchmark rate, the MPC revised the policy corridor to plus 50 and minus 450 basis points. The cash-reserve ratio was kept at 45 per cent for deposit money banks, 16 per cent for merchant banks and 75 per cent for non-TSA public sector deposits. The liquidity ratio remained at 30 per cent.

Cardoso attributed the inflation slowdown to tighter monetary conditions, a steadier exchange rate, improved food supply and increased capital inflows. Food inflation edged down to 13.12 per cent, and core inflation slowed to 18.69 per cent. He pointed to favourable economic indicators, including second-quarter GDP growth of 4.23 per cent and a Purchasing Managers’ Index of 56.4 points in November, the highest in five years.

A major feature of the meeting was an update on the banking sector recapitalisation programme. Sixteen banks have now met the revised capital requirements well ahead of the 2026 deadline, while 27 institutions have raised capital through various channels. Cardoso described the progress as positioning the sector to support economic expansion while managing risks across jurisdictions.

Nigeria’s external reserves have also strengthened, rising by 9.19 per cent to 46.7 billion dollars by mid-November, equivalent to 10.3 months of import cover. The governor linked the rise to reforms that have made the naira more competitive, strengthened non-oil exports, boosted oil output, raised remittances and encouraged fresh portfolio inflows.

On the foreign exchange market, Cardoso dismissed suggestions that the narrow 2 per cent gap between official and parallel rates was deliberately engineered. He pointed to the transparency of the Electronic Foreign Exchange Matching System, which enables genuine price discovery through willing buyers and sellers. Daily turnover now averages about 500 million dollars without central bank intervention, a development he said reflects greater confidence and transparency.

He added that the improvements are filtering down to ordinary Nigerians, noting that travellers can now make overseas payments using naira cards as the financial system stabilises.

Financial analyst Prof Uche Uwaleke welcomed the MPC’s choice to retain the MPR at 27 per cent. In a statement issued after the meeting, the President of the Capital Market Academics of Nigeria described the decision, along with the retention of the cash-reserve ratio and liquidity ratio, as a positive step.

He observed that narrowing and adjusting the standing facility corridor to plus 50 and minus 450 basis points effectively reduces the ceiling for CBN lending and widens the deposit window. “This adjustment signals cautious operational easing, even as headline MPR remains elevated apparently to continue to manage inflation and FX pressure,” he said.

With cheaper access to the central bank’s lending window, Uwaleke argued that banks should face lower marginal funding costs, which could reduce interbank volatility and support lending to SMEs. He noted that the real test would be whether banks translate the corridor adjustment into lower lending rates. Given the fiscal pressures linked to deficit financing, rising inflation risks and the need to sustain growth, he described the MPC’s stance as appropriate.

Fresh data from the National Bureau of Statistics showed that aggregate Value Added Tax for the second quarter of 2025 stood at N2.06 trillion. According to the VAT Q2 2025 Report released in Abuja, the figure represents a marginal quarter-on-quarter decline of 0.03 per cent from N2.06 trillion in the first quarter.

Local VAT payments accounted for N1.09 trillion, foreign VAT payments contributed N459.95 billion and import VAT amounted to N508.55 billion. On a quarter-on-quarter basis, real estate activities posted the highest growth at 155.21 per cent, followed by agriculture, forestry and fishing at 23.64 per cent, and information and communication at 17.75 per cent.

Human health and social work activities recorded the lowest rate at minus 68.34 per cent, trailed by electricity, gas, steam and air conditioning supply at minus 45.20 per cent and water supply, sewerage, waste management and remediation at minus 29.36 per cent.

Manufacturing led sectoral contributions with 27.19 per cent, followed by information and communication at 20.76 per cent and mining and quarrying at 15.04 per cent. Activities of households as employers posted the smallest share at 0.005 per cent, ahead of extraterritorial organisations and bodies at 0.02 per cent, and water supply and waste management at 0.03 per cent. Year on year, VAT collections rose by 32.15 per cent from the second quarter of 2024.

The bureau’s Q1 2025 VAT report recorded aggregate VAT of N2.06 trillion, representing a 6.02 per cent increase from the N1.95 trillion posted in the last quarter of 2024. Local VAT payments stood at N1.10 trillion, foreign VAT payments at N454.76 billion and import VAT at N507 billion.

Quarter-on-quarter comparisons showed electricity, gas, steam and air conditioning supply posting the highest growth rate at 136.71 per cent, followed by administrative and support services at 45.24 per cent and professional, scientific and technical activities at 39 per cent.

Activities of extraterritorial organisations and bodies had the lowest rate at minus 35.70 per cent, followed by wholesale and retail trade and motor vehicle repair at minus 14.51 per cent, with real estate activities at minus 11.54 per cent.

Sectoral contributions for Q1 2025 were led by manufacturing at 26.03 per cent, information and communication at 17.51 per cent and mining and quarrying at 17.02 per cent. The smallest shares came from households as employers at 0.004 per cent, followed by extraterritorial organisations at 0.02 per cent and water supply, sewerage and waste management at 0.04 per cent. Year on year, VAT collections increased by 44.24 per cent from the first quarter of 2024.