At its 305th meeting, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) decided to hold the monetary policy rate (MPR) steady at 26.5 percent, a move widely anticipated by analysts. However, beneath this seemingly straightforward decision lies a deeper debate about inflation credibility, exchange-rate management, banking sector resilience, and the limits of Nigeria's monetary policy framework.
Key Parameters Unchanged
The committee retained all key parameters, including the asymmetric corridor around the MPR at +50 and -450 basis points, the cash reserve ratio (CRR) at 45 percent for deposit money banks (DMBs) and 16 percent for merchant banks, and liquidity conditions for non-TSA public sector deposits at 75 percent. For the 11-member committee, the decision reflected caution rather than resistance, as they opted to wait and assess evolving risks before loosening policy prematurely amid renewed inflationary pressure.
Inflation Concerns
The MPC's primary concern was the return of inflationary pressure after months of moderation. Headline inflation rose for the second consecutive month to 15.69 percent in April 2026 from 15.38 percent in March, while food inflation climbed sharply to 16.06 percent from 14.31 percent. The committee attributed the increase largely to higher transportation and logistics costs linked to geopolitical tensions in the Middle East, which raised global energy prices that filtered into domestic supply chains. Despite this, the MPC framed the inflation rise as temporary rather than structural, citing exchange-rate stability, stronger external reserves, fiscal reforms, and banking sector recapitalisation as buffers against a more severe shock.
Economic Indicators
Nigeria's external reserves rose to $49.49 billion as of May 15, 2026, from $48.35 billion at the end of March, providing more than nine months of import cover. The naira remained relatively stable, and the economy recorded 4.07 percent GDP growth in the fourth quarter of 2025, driven by expansion in both oil and non-oil sectors. The recent S&P Global rating upgrade also reinforced confidence within the committee that maintaining current rates was preferable to either tightening further or cutting too quickly.
Divergent Views
The decision exposed a widening divide among economists. Vice Chairman of Highcap Securities, David Adonri, said he had expected a slight hike in response to the inflation uptick. He noted that leaving monetary aggregates unchanged indicates the committee remains committed to supporting economic growth. Adonri suggested that monetary tightening may have run its course and that fiscal measures should now play a stronger role.
Dr Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), gave cautious approval, arguing that further tightening would strain businesses already grappling with weak demand, high operating costs, and expensive credit. The CPPE described the MPC's stance as “policy maturity and strategic restraint,” insisting that Nigeria's inflation problem is largely supply-driven rather than demand-induced.
Data Reliability Questions
Beyond the rate decision, concerns about data reliability were raised. Prof. Godwin Owoh, Executive Chairman of the Society for Analytical Economics, questioned the credibility of Nigeria's inflation measurement framework, arguing that the country's three most critical macroeconomic variables—inflation, exchange rate, and interest rates—are built on weak statistical foundations and incomplete financial disclosures. He also challenged the effectiveness of Nigeria's monetary transmission mechanism, noting that persistent opacity in government fiscal operations has weakened the connection between the benchmark rate and actual credit conditions.
Exchange Rate Stability
The relative stability of the naira has become one of the CBN's strongest talking points. The MPC credited foreign exchange stability for helping to moderate imported inflation and reduce market volatility. The CPPE praised the CBN's shift from “crisis management” to “confidence management,” arguing that improved FX stability has helped restore investor confidence and curb speculative pressures. However, Owoh offered a more sceptical interpretation, questioning whether the CBN had been using reserves aggressively to defend the naira at levels unsupported by market fundamentals.
Banking Sector Recapitalisation
The MPC also devoted attention to the recently-concluded banking sector recapitalisation exercise, which the committee described as successful. CBN Governor Olayemi Cardoso disclosed that the exercise injected N4.65 trillion into the economy, while the committee highlighted stronger financial soundness indicators across 33 banks. However, Owoh questioned the absence of clarity regarding the true economic cost, arguing that the headline figure reveals little about net value created after high legal, administrative, and advisory costs.
Outlook
The next MPC meeting, scheduled for July 21 and 22, could prove more consequential. If inflation eases in May and June, food supply improves with the harvest season, and exchange-rate stability holds, the committee may resume the gradual easing cycle it began in March. Adonri believes the committee's next move will depend largely on the inflation trajectory, noting that if inflation continues to rise, the MPC may have little choice but to resume tightening. He added that the CBN may also intensify the use of open market operations to moderate liquidity and contain inflationary pressure even without an immediate hike in the benchmark rate.
