CBN Stands Firm as Fiscal Risks Mount

Behind the CBN’s calm rate pause lies rising fear over inflation, political spending, and economic stability, writes Festus Akanbi

The Central Bank of Nigeria’s (CBN) decision to retain the Monetary Policy Rate (MPR) at 26.5 per cent may have appeared predictable to financial markets, but beneath the calm language of the Monetary Policy Committee (MPC) lies a more delicate economic reality. 

Nigeria is approaching a politically sensitive season when campaign-related spending is expected to intensify ahead of next year’s general election preparations. At the same time, inflationary pressures, exchange-rate vulnerabilities, and global geopolitical tensions continue to test the economy’s resilience.

By choosing to hold rates steady after February’s modest 50-basis-point cut, the MPC signalled that its primary concern remains inflation containment and exchange-rate stability, even as businesses struggle under punishing borrowing costs.

CBN Governor Olayemi Cardoso defended the decision as a cautious response to global shocks and domestic vulnerabilities. According to him, recent inflationary pressures were largely externally driven, with rising energy costs linked to tensions in the Middle East. 

The committee retained all major policy parameters, including the Cash Reserve Ratio at 45 per cent for commercial banks and 16 per cent for merchant banks, while also maintaining the asymmetric corridor around the MPR at +50/-450 basis points.

The figures confronting policymakers remain sobering. Nigeria’s headline inflation climbed to 15.69 per cent in April 2026 from 15.38 per cent in March, while food inflation accelerated sharply to 16.06 per cent due largely to transportation and logistics costs. Core inflation, however, eased marginally to 15.86 per cent, suggesting that underlying price pressures may be moderating.

Yet, beyond the statistics lies a more politically charged challenge. Historically, election cycles in Nigeria have often been accompanied by heavy liquidity injections into the economy through campaign spending, political mobilization, patronage networks, and increased fiscal disbursements. Economists warn that such spending could complicate the CBN’s fight against inflation in the months ahead.

Managing Director of Financial Derivatives Company, Bismarck Rewane, described the current environment as one requiring vigilance rather than panic. According to him, recent reforms may insulate Nigeria, but it is not isolated from global disruptions. He noted that many central banks worldwide have adopted a cautious stance amid slowing global growth and persistent inflation concerns.

Indeed, the broader global backdrop remains fragile. Crude oil prices have remained volatile amid renewed tensions among Iran, Israel, and the United States, while supply chain disruptions continue to drive imported inflation across emerging economies. Nigeria, despite benefiting from higher oil prices as an oil producer, remains vulnerable due to its dependence on imported refined products, industrial inputs, and food items.

The CBN argues that reforms implemented over the past year have helped build buffers against these shocks. Gross external reserves rose to $49.49 billion as of May 15, 2026, enough to provide import cover for over nine months. The apex bank also pointed to relative exchange-rate stability and improved investor confidence following recent sovereign rating upgrades by S&P Global Ratings.

For investors, the rate hold reassures them that the CBN remains committed to maintaining macroeconomic stability. The naira traded within relatively stable levels after the MPC announcement, while yields in Nigeria’s debt market remained attractive to foreign portfolio investors seeking returns in frontier markets.

However, for manufacturers and small businesses, the implications are more painful. Commercial lending rates remain elevated, making access to credit increasingly difficult for productive sectors already weighed down by high energy costs, insecurity, and weak consumer demand.

Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, argued that inflation in Nigeria is currently driven more by structural and supply-side factors than by excess liquidity alone. According to him, aggressive monetary tightening cannot repair broken supply chains, solve insecurity, or eliminate logistics bottlenecks.

That argument resonates strongly within the organised private sector. Businesses continue to battle soaring electricity costs, high diesel prices, exchange-rate uncertainties, and declining consumer purchasing power. Although the Dangote Refinery’s operations have helped reduce diesel prices from nearly N3,000 per liter to about N1,675, many firms say financing costs remain prohibitively high.

Development economist Justin Amase warned that persistently high interest rates could further weaken production and aggregate demand. He argued that industries are already struggling to expand because the cost of funds has become excessively expensive, while households continue to face declining purchasing power.

The political calendar may intensify these pressures. As consultations, alignments, and campaign structures gather momentum ahead of the 2027 election cycle, economists expect increased fiscal injections and heightened liquidity across the economy. Such spending often stimulates short-term consumption without a corresponding increase in productivity, thereby exacerbating inflationary trends.

This creates a policy dilemma for the CBN. Raising rates further could deepen the strain on businesses and suppress economic growth, while loosening policy prematurely risks triggering renewed exchange-rate instability and inflationary spikes fuelled by political spending.

For now, the MPC appears to be betting that existing reforms and exchange-rate management will contain those risks. Cardoso repeatedly emphasised that exchange-rate stability remains the “centrepiece” of the bank’s toolkit.

The banking sector recapitalisation programme also forms part of that broader stabilisation strategy. The CBN disclosed that 33 banks have successfully met new capital requirements. This development, policymakers believe, will strengthen the financial system’s resilience and improve the sector’s capacity to support long-term economic growth.

Still, analysts note that monetary policy alone cannot deliver durable stability in an election-bound economy. Fiscal discipline will be equally critical. Rising government expenditure without commensurate productivity gains could offset much of the progress achieved through tighter monetary policy.

Nigeria’s fourth-quarter 2025 GDP growth of 4 percent offers some encouragement, particularly given stronger contributions from the non-oil sector and refining activities. Yet growth remains fragile amid weak household incomes and persistent structural inefficiencies.

What emerges from the MPC’s latest decision is not triumphalism, but caution. The central bank is effectively attempting to balance three difficult objectives simultaneously: slowing inflation, defending the naira, and avoiding a complete strangulation of economic activity.

That balancing act may become far more difficult in the months ahead as political spending rises, global uncertainties persist, and ordinary Nigerians continue to grapple with elevated living costs. For the moment, the MPC has chosen steadiness over shock therapy. Whether that restraint proves sufficient may depend less on monetary policy alone and more on the discipline of fiscal authorities, the conduct of political actors, and the ability of reforms to survive the pressures of Nigeria’s election season.