Watching what is changing, understanding the signals

As we, Nigerians, enter the new year 2026, the reality of the new environment will begin to dawn on us.  In a year with the economy in flux, making sense of the changes will be critical to knowing what to do and how. To survive the barrage of changes coming, the average citizen would need to see beyond what is said and make sense of the signals arising from speeches.

Already, we have a contradiction of sorts at the heart of its economy. Major macroeconomic indicators are beginning to improve, as we have seen in the past quarters. Notable among these is inflation, which eased from a high of 34.8 per cent in December 2024 and beat the government’s target of 15 per cent by November. The exchange rate or the value of the naira has also stabilised. Yet, financial strain on households and companies remains.

Many have mistaken this phenomenon for a paradox or a contradiction. It is not. Rather, it reflects the changes going on in the economy.  It is an inevitable outcome of an economy adjusting to tighter monetary conditions, ongoing fiscal reforms, and structural constraints. All this is happening at the same time.

This reality highlights the significance of President Bola Tinubu declaration in his budget 2026 presentation, of the coming “reset” in the economy. It is a policy narrative that emphasizes “reset” as imperative in restoring credibility, rebalancing public finances, and correcting distortions built up over the years. According to the president, Nigeria is set for “a reset, a very hard one”.  That came with a sound of force and determination. Yet, resets are rarely painless, in both the short and long terms. In the short term, resets compress demand, raise the cost of adjustment, and expose institutional limits. The result is an economy that appears more stable on paper but is quite restrictive. For it to achieve the intended purpose, the reset must be anchored on policy coordination and coherence that give clear signals as a guide for everyone.

Therefore, to understand Nigeria’s economic direction in 2026, you must probe beyond whether indicators are rising or falling. Instead, you would need to focus on what policy signals the changes are conveying to you, whether as households or companies that must grapple with the emerging realities in the economy.

Some of the areas to watch out for these signals include the disinflationary trend that began early last year. Yet, while this has lasted, the monetary authorities have stuck to their restrictive postures.   From 34.8 per cent  in December 2024, inflation eased to 14.45 in November. Yet for the same period, CBN’s MPR has fallen only by 0.50 per cent or 50 basis points from 27.5 per cent to its current level of 27 per cent. In other words, interest rates, or the cost of funds, have remained high, liquidity conditions have been constrained, and credit growth has been subdued. The truth is that this configuration is a signal and tells us what the authorities wish to achieve.

Retaining high interest rates in the face of falling inflation raises the real cost of funds. Who does this hurt? It hurts businesses because it means higher hurdle rates for investment evaluations. It could lead to rejecting projects that, under lower interest costs, would have been acceptable. Consequently, some projects that otherwise would move to commencement stages could remain on the shelves for long periods. This could constrain expansion in the real sector as more project proposals fail the acceptability hurdles.

Interestingly, CBN in its December 2025 Business Expectations Survey Report found that high interest rates and high taxes were among the five major constraints that face businesses in the country.  The other three were insecurity, multiple taxes, and insufficient power. Clearly, then, if interest costs constitute a constraint on businesses, the longer the authorities maintain high rates, the longer businesses will be held back. This will be so, no matter the optimism expressed by the business community.

The authorities appear more concerned with anchoring expectations and avoiding a premature easing that could reignite inflation or destabilise the exchange rate. In essence, therefore, what they seek is to reassure markets of stability. But that is stability that comes at the cost of real relief for the real economy.

Who are the beneficiaries of the current macroeconomic configuration? They are savers and holders of financial assets, as well as policymakers who seek credibility and stability. However, the losers include the small and medium-sized enterprises, which cannot bear the high costs of funding. For such small firms, the rate of interest is much higher than the 27 per cent MPR, with effective rates being as high as 40 per cent.

Overall, the current position is not a neutral policy stance. It is CBN’s deliberate choice to accept slower activity now in exchange for perceived stability later. For how long will this subsist?

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