CBN holds interest rate at 26.5% as inflation fight continues despite easing price pressures

The Central Bank of Nigeria left its benchmark interest rate unchanged at 26.5 percent for the second straight meeting on Tuesday, signalling caution even as headline inflation showed signs of easing. The Monetary Policy Committee voted unanimously to hold the Monetary Policy Rate, according to CBN Governor Olayemi Cardoso.

The committee also retained the asymmetric corridor around the MPR at +50/-450 basis points, kept the Cash Reserve Ratio for Deposit Money Banks at 45 percent, and held the CRR for Merchant Banks at 16 percent. A 75 percent CRR on Non-TSA public sector deposits and the liquidity ratio at 30 percent were also maintained.

Disinflation progress and unexpected shocks

Cardoso told reporters after the two-day meeting in Abuja that the bank had expected to reach single-digit inflation by early 2027. “Eleven months of disinflation, and quite frankly, from every indication, we were expecting that by early 2027, we would be where we want to be in terms of inflation and firmly on track for single digits,” he said. “Unfortunately, shocks that came that were not anticipated in that manner have gone on a lot longer than could have been anticipated.”

Despite the setback, the governor pointed to recent moderation as evidence that monetary policy tools were working. “We are pleased, however, on two counts. One is the fact that inflation has moderated. Albeit slightly, it has moderated,” Cardoso said. “Headline inflation has moderated, so that gives us an indication that the tools we have implemented so far are bearing effect.”

Official data showed headline inflation eased marginally to 15.91 percent in June from 15.93 percent in May, ending three straight months of increases. However, food inflation rose to 17.52 percent from 16.96 percent, driven by supply constraints and higher transportation costs.

Economists back the cautious stance

Bismarck Rewane, managing director and CEO of Financial Derivatives Company Limited, said the decision reflects the CBN's determination not to ease policy too soon. “When you take all of that into consideration, it tells you that even at 15 percent inflation and an MPR of 26.5 percent, there's enough room to manage and bring inflation down,” Rewane said during a CNBC Africa interview. “The nominal anchor for inflation management is the policy rate, and by not going down, we are being cautious to ensure that you don't precipitously bring down rates. It's the right strategy.”

He noted that underlying indicators point to gradual improvement, citing the appreciation and stability of the naira, rising external reserves and moderation in money supply. But he warned that geopolitical tensions in the Middle East and volatility in global commodity markets continue to pose upside risks to inflation.

Nnamdi Nwaizu, co-managing partner at Comercio Partners, said the decision had already been priced in by financial markets. “About 99 percent of the market expected that things will stay as they are, so you're not going to see much of a market reaction,” Nwaizu said. He added that the current high-yield environment continues to attract foreign portfolio investors into Nigeria's fixed-income market while supporting returns for domestic investors.

According to Nwaizu, manufacturers prefer exchange rate stability over lower interest rates. “For manufacturers, they would rather have stable exchange rates than lower interest rates. If you ask them which one they prefer, they'll tell you they'd rather have stability in the exchange rates,” he said, noting that stable foreign exchange conditions have supported earnings growth for several fast-moving consumer goods companies despite the high interest rate environment.

Mixed trends across African central banks

Analysts said the MPC's latest decision signals that the CBN remains focused on consolidating recent gains before considering any monetary easing. Election-related spending, seasonal import demand and global uncertainties could keep inflationary pressures elevated in the months ahead.

Across Africa, the monetary policy landscape is fragmented. BusinessDay's review of 17 African central banks shows that as of July, five have raised interest rates, nine have held policy unchanged, and three have continued easing. Ethiopia raised its benchmark rate to 16 percent from 15 percent, the first increase since the rate was introduced in 2024 and the country's first monetary tightening in nearly a decade. The move came as inflation accelerated to a year high of 13.9 percent in June. The National Bank of Ethiopia also removed its 24 percent cap on annual credit growth for commercial banks.

For Nigeria, the hold decision means borrowing costs remain elevated for businesses and consumers. But the CBN is betting that keeping rates high will anchor inflation expectations, support the naira, and eventually pave the way for lower prices and lower rates down the line.