Central Bank of Nigeria Cuts Monetary Policy Rate Amid Disinflation and FX Stability
The Central Bank of Nigeria (CBN) reduced the Monetary Policy Rate (MPR) by 50 basis points to 26.5 per cent during its 304th meeting on 24 February 2026. This decision came after months of anticipation, as several analysts had predicted a rate cut based on improving economic indicators. However, the committee maintained other key parameters, including the standing facilities corridor around the MPR at +50 and -450 basis points, and kept the Cash Reserve Requirement (CRR) for deposit money banks at 45 per cent.
The decision was grounded in two main factors: the ongoing disinflation trend and the stability of the foreign exchange market. At the same time, the CBN acknowledged that fiscal risks, such as increased government spending and election-related expenditures, could pose challenges to the current outlook.
Disinflation as a Key Trigger
Analysts have highlighted that Nigeria’s disinflation is being driven by several factors, including sustained improvements in external buffers, exchange rate stability, and a decline in food prices. According to the Consumer Price Index (CPI) report from the National Bureau of Statistics (NBS), the headline inflation rate dropped slightly to 15.10 per cent in January 2026, down from 15.15 per cent in December 2025. This marked the lowest inflation rate in five years and two months, since November 2020.
Food inflation also saw a significant decline, falling to 8.89 per cent in January 2026, the first single-digit reading in 128 months. Core inflation eased to 17.72 per cent, largely due to a moderation in Information and Communication services. Additionally, month-on-month headline inflation turned negative at -2.88 per cent, indicating an outright price decline.
CBN Governor Olayemi Cardoso emphasized that the continued disinflation was primarily due to the “continued effects of the contractionary monetary policy,” along with stable foreign exchange markets and robust capital inflows. However, he cautioned that the central bank would not aggressively loosen liquidity, as other parameters remained unchanged.
FX Stability, Reserves, and Recapitalisation
The CBN also cited sustained foreign exchange (FX) market stability and improved external reserves as key factors behind its decision. Gross external reserves rose to $50.45 billion, providing import cover of 9.68 months for goods and services. Cardoso attributed this growth to higher export earnings, increased remittance inflows, and favorable trade developments.
The recent Presidential Executive Order 09, which redirects oil and gas revenues into the Federation Account, was also noted as a positive development. While the order has political implications, the CBN focused on its potential to strengthen fiscal planning and external buffers. However, the MPC warned that if fiscal discipline is weak, increased inflows could lead to higher spending, potentially undermining the disinflation trend.
Cardoso also outlined several risks that could disrupt the current stability, including global shocks, uncertainties in oil prices, and pre-election spending. He reiterated the importance of maintaining fiscal discipline to avoid pushing inflation back up.
Banking Sector Resilience
The CBN governor highlighted the resilience of the banking sector, noting that 20 banks had fully met the new minimum capital requirements, while 13 others were in advanced stages of their capital-raising processes. A total of N4.05 trillion in verified and approved capital was raised ahead of the 31 March 2026 deadline.
Domestic mobilization accounted for 71.67 per cent of the funds, with 28.33 per cent coming from foreign participation. This mix, according to Cardoso, reflects broad investor confidence in the sector.
He also addressed concerns about institutions under intervention, stating that depositor funds remain secure and that operations continue under close regulatory oversight. The CBN is also working on a comprehensive framework for digital assets to ensure financial stability in the rapidly evolving fintech ecosystem.
Likely Impact of the Rate Cut
The Minister of Finance and Coordinating Minister of the Economy, Mr Wale Edun, welcomed the rate cut, describing it as a signal of growing confidence in Nigeria’s economic stabilisation. He emphasized that the decision allows the government to accelerate investments in infrastructure, energy, agriculture, and social services.
Adewale Oyerinde, Director-General of the Nigeria Employers’ Consultative Association, noted that the marginal reduction in the benchmark interest rate indicates a cautious but meaningful response to pressures facing businesses. However, he warned that the capacity of financial institutions to expand credit may remain constrained due to the retained CRR of 45 per cent.
Dr Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise, described the rate cut as growth-supportive but cautioned that structural constraints could limit its impact. He stressed the need for fiscal consolidation to prevent crowding-out effects in the financial system.
Looking Ahead
Cardoso reaffirmed the MPC’s commitment to an evidence-based policy framework, emphasizing the need to maintain price stability while safeguarding the financial system’s soundness. He warned that while the current momentum of disinflation is expected to continue, increased fiscal releases could pose upside risks to the outlook.
Overall, the CBN’s decision reflects a delicate balance between supporting economic growth and maintaining macroeconomic stability. As Nigeria moves toward economic consolidation, the interplay between monetary and fiscal policies will be critical in shaping the country’s future trajectory.
