Nigeria’s central bank opted to keep its benchmark interest rate unchanged on Thursday, following a series of six rate hikes last year. The decision was driven by growing confidence in foreign exchange market stability and expectations of a gradual decline in inflation.

The move surprised economists, who were divided over what action the Central Bank of Nigeria (CBN) would take. Uncertainty stemmed from a recent statistical rebasing that led to a significant drop in January’s inflation reading, which came in at 24.48% year-on-year.

Despite raising rates by a cumulative 875 basis points in 2024 to combat inflation, the bank’s Monetary Policy Committee (MPC) held the Monetary Policy Rate at 27.50%. Governor Olayemi Cardoso, speaking at a press conference in Abuja, expressed confidence in the country’s macroeconomic trajectory.

"Inflation is on a downward trend, and the outlook is promising," Cardoso stated, emphasizing the bank's long-term goal of bringing inflation to single digits. He noted that the central bank would continue analyzing upcoming rebased inflation data to refine its inflationary outlook, highlighting food prices as a potential risk factor.

"We’re seeing a gradual return of confidence to our markets, signaling that we are on the right path," Cardoso added. "With this stability, we’re in a better position to start easing rates when appropriate, as maintaining economic steadiness is crucial."

Last year, inflation reached its highest levels in 28 years, fueled by President Bola Tinubu’s sweeping economic reforms, which included subsidy removals and a devaluation of the naira after he took office in 2023. These policies were designed to stimulate growth and improve public finances, though the economy has struggled to meet the administration’s ambitious 6% growth target.

In addition to revising its consumer price index, Nigeria’s statistics agency is preparing to release rebased gross domestic product (GDP) data. A similar rebasing exercise in 2014 catapulted Nigeria past South Africa as Africa’s largest economy. However, the naira’s depreciation under Tinubu’s leadership has since caused Nigeria to slip back behind South Africa in economic rankings.