Businesses Anticipate Higher Interest Rates, Inflation

Nigerians and businesses operating in the country are bracing for tighter financial conditions over the coming months, anticipating both higher interest rates and elevated inflation, according to new data from the Central Bank of Nigeria (CBN).

In its April 2025 Business Expectations Survey, the CBN found that 75.4 per cent of respondents cited high interest rates as a major constraint on business activity, the top concern across all sectors.

This sentiment is echoed in the Inflation Expectations Survey for the same period, which reveals that businesses foresee a rise in borrowing costs and inflation levels over the short to medium term.

According to the survey, respondents expect the monetary policy rate to remain elevated, and many anticipate further tightening as the CBN continues its inflation-targeting efforts. The survey shows a clear expectation that inflation will rise over the next 12 months, driven in part by higher energy costs, exchange rate pass-through, and structural supply-side constraints.

Despite these headwinds, the business confidence index continued its upward trajectory. Firms across all sectors, especially in agriculture and construction, reported optimism about the general economy and business operations for the next six months. However, they simultaneously flagged insecurity, taxes, and insufficient power supply as persistent threats to growth.

The surveys also showed that businesses expect the naira to appreciate slightly in the coming months, a signal of confidence in currency stability amid macroeconomic reforms. Firms expect the naira to appreciate slightly in the near term, despite widespread concerns about foreign exchange volatility.

Capacity utilisation improved marginally to 56.9 per cent in April, indicating better resource use, though still well below full potential. Meanwhile, hiring plans are expanding, particularly in the construction and mining sectors.

Geographically, business sentiment varied across Nigeria’s regions. The South-West and South-South reported the highest confidence levels, while North-East and North-Central respondents expressed more cautious outlooks, likely reflecting regional differences in security, infrastructure, and policy implementation.

On the monetary front, the growing expectation of higher interest rates will likely complicate the CBN’s task of balancing price stability with economic growth. The Monetary Policy Rate (MPR) currently sits at a historic high following consecutive hikes in recent quarters aimed at curbing inflation and stabilising the naira.

The surveys suggest that businesses expect this tightening stance to continue, potentially discouraging borrowing and investment.