The International Monetary Fund (IMF)
The International Monetary Fund (IMF) has called on the Central Bank of Nigeria (CBN) to maintain a tight monetary policy stance in light of Nigeria’s persistent inflationary pressures and continued foreign exchange market volatility.
In its recently released 2025 Article IV Consultation Report, the IMF praised the CBN’s aggressive monetary tightening in 2024, which saw the policy rate increase by 875 basis points, describing it as appropriate and timely to curb inflation and stabilise the naira exchange rate.
“The CBN has appropriately tightened monetary policy and should maintain a tight stance going forward, considering still high inflation and external pressures,” the IMF stated.
Monetary Tightening Supports FX Stability, But Transmission Remains Limited
The IMF noted that both ex-ante and ex-post real interest rates are now positive, which is essential for guiding inflation downward and supporting external stability amid global uncertainty.
To further reinforce macroeconomic stability, the CBN implemented complementary measures such as increasing the cash reserve ratio to 50%, expanding the asymmetric corridor, and issuing Open Market Operations (OMOs) to manage liquidity.
“These policies have incentivised foreign exchange inflows and helped stabilise the FX market,” the IMF said.
Despite progress, the Fund noted that credit transmission remains weak due to Nigeria’s low credit-to-GDP ratio, underscoring the need for continued data-driven policy and improvements to the CBN’s forecasting and modelling tools.
Call for Inflation Targeting and Fiscal Alignment
The IMF urged Nigerian authorities to announce a clear disinflation path to anchor inflation expectations and pave the way for a transition to an inflation-targeting regime.
It also recommended a neutral fiscal policy stance in 2025 that complements monetary efforts, helping to entrench disinflation gains and potentially lower nominal policy rates, while keeping real interest rates positive.
“A well-communicated disinflation strategy would aid in anchoring inflation expectations and facilitate Nigeria’s transition to an inflation-targeting framework,” the Fund stated.
Nigeria Faces $2 Billion Portfolio Investment Outflow, Heightened External Risks
The IMF revealed that Nigeria experienced $2 billion in portfolio investment outflows by April 2025, highlighting the country’s exposure to external shocks despite resilience-building efforts by the CBN.
“The outflow of some $2 billion in portfolio investments through April, with limited CBN interventions, demonstrated that the foreign exchange market functions even under stress,” the report noted.
However, the IMF cautioned that the positioning of nonresident investors in OMOs and treasury bills increases rollover risk, especially under volatile global conditions.
A sudden decline in oil prices or a rise in geopolitical uncertainty could lead to further capital flight, placing downward pressure on reserves and the exchange rate.
In such scenarios, the IMF said that temporary capital flow management measures (CFMs) could be justified, as long as they are implemented as part of a broader macroeconomic strategy and aligned with the IMF’s Institutional View on Capital Flow Management.
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Long-Term Focus on FDI and Business Environment Reform
In the medium term, the Fund advised Nigerian policymakers to prioritise structural reforms aimed at improving the investment climate and reducing dependence on volatile portfolio flows by attracting more stable foreign direct investment (FDI).
“Improving the business environment is essential to unlock FDI and reduce reliance on short-term capital flows,” the report concluded.
Global Financial Digest
