Of CBN’s Credibility and Market Expectations

James Emejo  writes that the latest monetary policy rate  cut by the Central Bank of Nigeria reaffirms the bank’s commitment to drive the orthodox monetary policy standards, and enshrine trust, transparency, credibility and rules-based administration under Mr. Olayemi Cardoso’s watch.   

After a long haul at a restrictive monetary policy regime to rein in inflation, the Central Bank of Nigeria (CBN), earlier in the week, decided to reduce the Monetary Policy Rate (MPR), the benchmark interest rate by 50 basis points to 26.5 per cent from 27 per cent.

After the two-day meeting of the Monetary Policy Committee (MPC) in Abuja, the apex bank however, retained the Standing Facilities Corridor (SFC) around the MPR at +50/-450 basis points, and left the Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs), Merchant Banks (MBs), and non-TSA public sector deposits unchanged at 45 per cent, 16 per cent, and 75 per cent respectively.

Since the CBN Governor, Mr. Olayemi Cardoso’s assumption of office in September 2023, the bank had increased interest rate over five times amid an aggressive inflationary regime that peaked at over 35 per cent, partly fueled by an unprecedented liquidity injection into the economy by the previous CBN administration.

Background to tightening policy regime

Cardoso said he inherited loans and advances to the economy, which stood at about N40 trillion, of which CBN interventions accounted for about 25 per cent, noting that excess liquidity injections – through unorthodox monetary policy – were responsible for the distortions, including high inflation, given that the injections were not properly managed.

He pointed out that the CBN currently lacks the capacity to manage direct interventions and would rather focus efforts on its primary mandate to control inflation, stabilise prices, and ensure a stable economic environment.

Cardoso also inherited about $2.4 billion out of the acclaimed $7 billion outstanding foreign exchange liabilities of the federal government, which were not valid for settlement, adding that the bank had settled verified FX requests, which amounted to $2.3 billion, while total outstanding FX obligations at the time stood at about $2.2 billion.

He noted that part of the headline $7 billion outstanding FX claims, was fraudulent, citing the outcome of a forensic audit by Deloitte Management Consultant, which was commissioned by the apex bank.

It was on the premise of the historic liquidity surplus in the economy, which drove up inflation amid a lower output that the CBN governor decided to pursue a contractionary monetary policy trajectory to curb rising prices which had already weakened the Naira among other adverse consequences.

Cardoso was at the time under pressure to reduce MPR, which was at over 18 per cent when he took over to stimulate growth and save the economy. But he remained adamant to these pleas, particularly from the real sector operators.

The CBN governor, who was bent on reestablishing the orthodox monetary policy regime, argued that growing the economy was needless at a time when inflation was excessively high.

At a point, while addressing a group of investors, he explained that whatever gains they made will be eroded if inflation was not dealt with headlong.

Essentially, inflation becomes harmful to growth and investment when it is high, volatile, or unpredictable as it tends to create uncertainty for businesses, and long-term contracts become harder to price while investment returns are more difficult to estimate among other implications for individuals and economy in general.

Cardoso, who chose to stick to the CBN’s mandate of monetary and price stability had explained that he was not against supporting growth but would rather take care of the threat posed by inflation to price stability.

 state clearly and unequivocally that I have nothing against interventions. It is done all over the world; in times of crisis, intervention does take place, and so, I am not saying it is necessarily a bad thing. I am just saying that it needs to be done in a well thought out manner and in a manner that does not distabilise the economy.”

Disinflation offers relative calm

 Cardoso however, pointed out that said the MPC’s decision to cut MPR by 50 basis points was premised on a balanced evaluation of risks to the inflation outlook, which suggests that the ongoing disinflation trajectory would continue – largely supported by the lagged transmission of previous monetary tightening, sustained exchange rate stability, and enhanced food supply.

The MPC particularly took into account the sustained deceleration in year-on-year headline inflation in January 2026, marking the 11th consecutive month of decline. It noted that deadline inflation (year-on-year) eased to 15.10 per cent in January 2026, from 15.15 per cent in December 2025, reflecting a moderation across both the food and core components.

Not yet Uhuru

Cardoso, however, cautioned that while the outlook indicated that the current momentum of domestic disinflation will continue in the near term, increased fiscal releases including election-related spending could pose upside risk to the outlook. He noted that the outlook indicated that the current momentum of domestic disinflation will continue in the near term.

According to him, “This is premised on the lagged impact of previous monetary policy tightening, sustained stability in the foreign exchange market and improved food supply.

“However, increased fiscal releases including election-related spending could pose upside risk to the outlook.”

Analysts’ perspectives

Members of the Organised Private Sector (OPS) and analysts, were quick to welcomed the 50-basis-point reduction in MPR by the central bank, describing the cut as a ‘cautious’ step by the bank amid concerns over the durability of disinflation trends, and urged the government to further derisk the business environment.

The private sector had all along pressed Cardoso to reduce interest rates even when it looked like inflation was abating.

But the CBN governor stuck to his guns – insisting that until prices dropped to appreciable levels, the apex bank will not cut the MPR.

This was why the latest rate cut excited the real sector in particular. They however, expressed worry that despite the recent interest rate cut, the prevailing interest rate environment remained restrictive for the real sector, limiting access to affordable credit and dampening expansion plans.

The President, Abuja Chamber of Commerce and Industry (ACCI), Chief Emeka Obegolu, described the reduction as “cautiously optimistic step toward easing financial pressures on businesses and supporting economic recovery”, signaling growing confidence in Nigeria’s disinflation trajectory and macroeconomic stabilisation. He said the adjustment of the asymmetric corridor around the MPR was a technical but important reform aimed at improving interbank market efficiency and strengthening policy effectiveness. Obegolu said the chamber anticipates that the policy mix will reduce financing costs and improve credit availability to the real sector, support private sector expansion and job creation, sustain exchange rate stability and investor confidence as well as encourage prudent fiscal liquidity management and transparency. He told THISDAY, “While commending the CBN for its balanced approach, ACCI urges continued coordination between monetary and fiscal authorities to ensure that easing financial conditions translate into real sector growth.”

Also, reacting to the MPC’s decision, Nigeria’s Professor of Capital Market, Prof. Uche Uwaleke, described the MPR cut as “prudent, credibility-building, and consistent with a central bank that wants to consolidate macroeconomic stability.”

He said a sustained disinflation will guarantee further interest rate reduction by the CBN

He told THISDAY, “I consider the 50-basis point cut as a signal. If disinflation continues for another two to three months and external conditions remain stable, we could see further gradual cuts. But the era of aggressive easing is unlikely unless inflation falls much faster or growth weakens sharply.”

Director General, Lagos Chamber of Commerce and Industry (LCCI), Dr. Chinyere Almona, praised the central bank’s deviation from aggressive monetary tightening toward a stabilisation phase that is anchored on disinflation, exchange rate convergence, and improving supply-side conditions, noting that the shift remained a “cautious, positive step in the right direction.”

The LCCI emphasised the need to continue to focus on addressing impediments in the business environment in order to attract the necessary foreign direct investment into critical sectors such as renewable energy, transport logistics, agro-processing, and oil and gas.

She noted that while retaining other monetary parameters suggested that liquidity conditions remained restrictive, the rate reduction remained a critical confidence signal to the OPS and established a pathway toward a gradual reduction in the cost of capital.

Almona told THISDAY, “Beyond this action, we expect to see improved policy predictability, strengthened real return expectations, and support for medium-term investment planning, particularly in manufacturing, agro-processing, local drug production, and export-oriented industries.

“We must sustain our efforts to expand local refining capacity and build lasting industrial systems that outlast political administrations.”

The Lagos chamber also stated that it expected increased credit to the private sector for productive activities, and investment in critical infrastructure, including government commitment to continued transparency in the FX market, as well as strong support to building local refining capacity in both the oil and gas and solid minerals sectors.

On his part, Chief Executive of CFG Advisory, Mr. Tilewa Adebajo, opined that the modest MPR cut pointed to lingering caution within the MPC over the durability of disinflation trends.

He said, “My own thoughts really are that the MPC still doesn’t have confidence in the disinflation situation. The key focus for the economy right now, in our own opinion, is the urgency of now. Reform gains need to now move from reform gains to productivity-led growth.”

Adebajo warned that the prevailing interest rate environment remained restrictive for the real sector, limiting access to affordable credit and dampening expansion plans.

Adebajo further argued that as Nigeria approaches an election cycle, campaign-related spending could provide short-term economic stimulus without necessarily stoking inflation.

According to him, “Election spending can be a boost to the economy. It can stimulate growth, because this is the sort of spending that will reach the grassroots. People are printing posters. They are being mobilised for campaigns.

“So, basically, these are the sort of spending activities that actually stimulate growth. I don’t think it’s going to be inflationary. The key thing for me now is that we need to start moving this economy into productivity-led growth.

“And it cannot grow at 4 per cent. We need to start growing this economy at 8 to 10 per cent per annum.”

Analysts further urged the CBN to accelerate monetary easing to unlock stronger growth momentum.

Senior Market Analyst at FXTM, Lukman Otunuga, said the rate reduction was unlikely to undermine the Naira, adding that it could reinforce recent gains in the foreign exchange market.

He said, “The CBN decision is likely to have a stabilising and even potentially positive impact on the Naira, which has gained 6 per cent year-to-date.”

He noted that growing investor confidence in the Nigerian economy, supported by improved foreign exchange liquidity and rising external reserves — which have climbed to a 13-year high — should provide a solid buffer for the local currency.

Otunuga noted that even with the 50-basis point cut, real interest rates remain elevated when adjusted for inflation, preserving Nigeria’s yield appeal.

Similarly, Head of Financial Institutions Ratings at Agusto & Co, Ayokunle Olubunmi, described the apex bank’s move as a signal of the monetary authority’s willingness to gradually unwind its tight stance.

He said, “The 50bps reduction in the MPR is a signal that the monetary authority is willing to reduce the prevailing rates. The rate cut also reflects the perception that while inflation pressure is easing, the decline does not justify a significant reduction in the prevailing rate.”