CBN Holds Course as Nigeria Navigates a Fragile Recovery

Nigeria’s economy is inching toward calm, but the Central Bank is refusing to celebrate too early. Inside this measured march toward stability, the MPC shows why discipline, not haste, may be the country’s most potent weapon against inflation, writes Festus Akanbi

The Central Bank of Nigeria’s latest monetary policy decision, arguably the most scrutinised of the year, underscored a recurring theme that has defined Olayemi Cardoso’s tenure: caution anchored in data, patience guided by macroeconomic logic, and a gradual pursuit of stability over theatrics.

At its 303rd meeting in Abuja, the Monetary Policy Committee voted to retain the benchmark interest rate at 27 per cent, keep the Cash Reserve Ratio across categories unchanged, and adjust the asymmetric corridor to +50/-450 basis points, moves that, together, signal that the battle against inflation is far from over, even as the clouds are beginning to clear.

State of the Economy

The bank’s stance emerges at a delicate juncture for the economy. Headline inflation has decelerated for seven consecutive months, falling from last year’s 34 per cent to 16.05 per cent in October. Food inflation has slowed markedly, and the foreign-exchange market, long the economy’s most volatile fault line, has enjoyed a level of stability unseen in many years. Gross external reserves have risen by over nine per cent in seven weeks, reaching $46.70 billion by mid-November, enough to cover more than ten months of imports. Foreign-portfolio inflows have also strengthened on the back of a more transparent FX trading framework. And yet, the bank insists it is too early to loosen its grip.

Disinflation Strategy

Cardoso framed the decision as a continuation of a disinflation strategy built on the cumulative effects of earlier tightening cycles. According to him, the lag in the transmission of interest-rate shocks means that the full impact of previous increases is still spreading through the economy. The MPC, in his words, believes “maintaining the current stance” will allow these earlier hikes to fully filter through to the real economy, especially at a time when global uncertainties remain unresolved. The committee is convinced that sustained discipline is critical to preventing the recent disinflation from unwinding.

Easing Interbank Volatility

This sense of caution is also reflected in the decision to narrow the upper band of the standing lending corridor. Reducing the ceiling on banks’ borrowing from the CBN lowers their marginal funding costs, with analysts such as Professor Uche Uwaleke observing that this should ease interbank volatility and potentially reduce the cost of credit for SMEs. The widened deposit window, which discourages banks from simply parking idle funds at the CBN, could nudge fresh liquidity into productive lending. However, the real test will be whether commercial lenders reflect this in pricing.

Reprieve in FX Market

Despite the tightening stance, the bank sounded upbeat about the broader macroeconomic environment. The FX market, which for years absorbed billions in intervention funds, now trades an average of $500 million daily with minimal CBN involvement. Cardoso attributed this to the bank’s shift to a transparent market-determined trading system that allows participants to know who is buying and who is selling at any time. This transparency, he argues, is the bedrock of the naira’s current stability, not administrative manipulation as is often feared.

External reserves have also benefited from rising non-oil export receipts, stronger remittances, improved oil production, and renewed foreign-portfolio investor interest. A more competitive exchange rate has stimulated export supply, while improved coordination between fiscal and monetary authorities has supported credibility. The bank considers these building blocks essential to creating an environment where private capital, both domestic and foreign, can thrive.

Battling Structural Constraints

Yet beneath the improving macroeconomic indicators lies a structural constraint that continues to shape the CBN’s policy direction: the legacy of past intervention schemes. The bank disclosed that of the N10.93 trillion disbursed in interventions over the last decade, N4.69 trillion remains outstanding. Cardoso explained that this backlog has effectively tied the bank’s hands, limiting its ability to deploy new interventions and reinforcing the reliance on orthodox tools such as interest rates. He argued that the heavy interventionism of past years not only distorted markets but also discouraged private lenders from entering segments dominated by subsidised CBN loans. The current administration’s approach is therefore focused less on direct lending and more on using its influence to mobilise private-sector institutions whose mandate naturally covers development finance.

Progress in the ongoing recapitalisation exercise further reinforces the bank’s preference for long-term system strengthening. Sixteen banks have already met the revised capital requirements, while 27 others are actively raising capital. The MPC praised the resilience of the financial system, noting that key soundness indicators remain above regulatory thresholds. More substantial capital buffers are expected to position Nigerian banks to withstand external shocks and support expansion within Africa’s competitive financial landscape.

Mixed Reactions from OPS

Reactions from the private sector indicate a mix of acceptance and lingering concern. The Lagos Chamber of Commerce and Industry described the rate retention as expected, noting that the bank appears determined to consolidate macroeconomic gains before considering an easing cycle. The chamber highlighted that the decision would reassure foreign investors who prioritise stability in emerging markets. The National Association of Small-Scale Industrialists also interpreted the MPC’s stance as confidence in current economic conditions, arguing that premature rate cuts could reignite inflation.

However, not all private-sector voices are in alignment. The Director-General of the Nigerian Association of Small and Medium Enterprises argued that the high benchmark rate continues to suppress credit growth, particularly for MSMEs whose survival depends on accessible finance. He questioned the disconnect between falling inflation and static interest rates, insisting that borrowing conditions remain harsh. While institutions such as the Bank of Industry have reportedly disbursed trillions to support industrial growth this year, stringent conditions and elevated costs continue to limit access. This divergence in perspectives highlights the central challenge of monetary policymaking: balancing inflation control with the need to stimulate inclusive growth.

Financial-market operators also offered a measured reading of the MPC’s decision. Some analysts had expected a slight cut given the sustained deceleration in inflation and the relative calm in the FX market. However, they acknowledged that the bank may be wary of seasonal pressures associated with end-of-year spending and potential disruptions to food supply from rising insecurity. The equity market, according to analysts, is unlikely to react dramatically, as the decision maintains the familiar environment that investors have priced in.

The bank’s broader outlook remains cautiously optimistic. It expects global inflation to decline steadily through 2026, driven by easing supply-chain bottlenecks, reduced commodity-price volatility, and the effects of earlier monetary tightening across major economies. Nonetheless, geopolitical risks, increasing protectionism, and renewed trade tensions pose potential headwinds. Domestically, GDP growth improved to 4.23 per cent in the second quarter, driven by stronger non-oil performance and a rise in November’s Purchasing Managers’ Index to 56.4—the highest in five years. With the ongoing harvest cycle expected to relieve food-price pressures, the CBN believes the path to further disinflation is credible.

Beyond numbers, Cardoso placed heavy emphasis on the philosophy guiding the bank’s approach. Stability, he argued, is the foundation upon which investment and, ultimately, growth are built. Nigeria’s recent exit from the Financial Action Task Force grey list, which had restricted correspondent banking relationships and increased the cost of cross-border transactions, was cited as confirmation that reforms aimed at promoting transparency are bearing fruit. According to the governor, global banks are now more willing to engage Nigerian institutions, improving liquidity in trade and remittance corridors.

The MPC’s latest decision, therefore, extends more than an interest-rate stance; it reflects a monetary strategy centred on credibility, transparency, and gradualism. The Bank appears intent on completing its fight against inflation before pivoting to growth-oriented easing. And while households may not fully feel the gains of macroeconomic stability, the CBN insists that the foundations being built today are necessary for sustainable, long-term expansion.

Whether this cautious march will deliver the anticipated dividends, and when, remains a question only the coming quarters can answer. But for now, Nigeria’s central bank is holding its nerve, convinced that the economy is best served by discipline rather than haste.