CBN RATE CUT TO 26.5%: VOICES, UPSETS AND PROSPECTS

By Adefolarin A. Olamilekan
Arguably, the latest decision by the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) to adjust the interest rate to 26.5% may have caught some analysts off guard in their projections. While some predictions may have been cut short, others may see the move as long overdue.
For instance, some analysts were of the view that this was the right time for the MPC to reduce the Monetary Policy Rate (MPR) by 100 basis points to 26.00 per cent.
They also suggested altering the asymmetric corridor from +50/-450 basis points to +200/-300 basis points around the MPR, while retaining the Liquidity Ratio at 30.00 per cent.
In addition, they proposed preserving the Cash Reserve Ratio (CRR) at 45.00 per cent for Deposit Money Banks, 16.00 per cent for Merchant Banks, and 75.00 per cent for non-TSA public sector deposits.
Exclusively, going by prevailing economic trends and the ongoing disinflation process that underpinned the January 2026 headline inflation rate of 15.10 per cent, core inflation of 17.72 per cent (excluding volatile agricultural produce and energy prices), and food inflation at 8.89 per cent — alongside the naira’s relative stability and appreciation against the dollar year-to-date at N1,356/$1 — many believed easing was justified.
That said, the CBN MPC rate was ultimately cut by 50 basis points, rather than the maximum 100 basis points some had projected, from the 27 per cent maintained in November 2025.
According to the MPC, the action was “premised on a balanced evaluation of risks to the outlook, which suggests that the ongoing disinflation trajectory will continue, largely supported by the lagged transmission of previous monetary tightening, sustained exchange rate stability, and enhanced food supply.”
The Committee also referenced the continued effects of contractionary monetary policy, stability in the foreign exchange market, robust capital inflows, and improvements in the balance of payments.
While this may sound technical to the average Nigerian, it simply means that the economy is experiencing improving macroeconomic stability, with moderating prices that justify a cautious easing of rates.
Importantly, this demonstrates that the CBN MPC has moved away from its earlier wait-and-see approach, now expressing cautious confidence that inflationary pressures are gradually easing — though not entirely behind us.
However, the Committee must remain vigilant regarding potential risks that could undermine recent macroeconomic gains.
This explains why the MPC warned that “increased fiscal releases, including election-related spending, could pose upside risks to the outlook.”
The 2026 budget of ₦58.18 trillion, including ₦26.08 trillion in capital expenditure, has raised concerns, especially as political activities and campaign spending ahead of the 2027 elections could inject additional liquidity into the system.
Unfortunately, fiscal policy remains largely outside the CBN’s control. The Bank must therefore remain focused on its core mandate of ensuring price stability, while maintaining well-calibrated monetary safeguards and resilient policy actions to protect Nigeria’s financial system.
There is also a need to prevent excess liquidity from undermining the progress already recorded in macroeconomic stability.
Now that expectations are high following the rate cut, it is hoped that this will gradually translate into lower lending rates, thereby supporting business credit expansion and improving access to finance without jeopardising liquidity or price stability.
Over time, the high lending rates in Nigeria have been discouraging for both small and large private sector operators, with many businesses struggling to survive or shutting down entirely.
Ultimately, the CBN must continue its measured and data-driven fine-tuning of monetary policy, deepen its alignment with improving macroeconomic fundamentals, sustain declining inflation, strengthen foreign reserves, enhance the trade balance, and maintain exchange rate stability.
Adefolarin A. Olamilekan
Political Economist and Host, The Market Report Show
ADBN Television
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