Nigeria’s central bank is expected to keep interest rates unchanged until the country’s election cycle draws closer to an end, as policymakers prioritise taming inflation and preserving exchange-rate stability over stimulating growth, according to economists.
The Central Bank of Nigeria (CBN) on Tuesday retained its benchmark Monetary Policy Rate at 26.5 percent for a second consecutive meeting, a decision widely anticipated by markets despite inflation easing marginally to 15.91 percent in June from 15.93 percent in May.
The hold reinforces Governor Olayemi Cardoso’s commitment to maintaining tight monetary conditions, a similar stance that occurred for most of 2025 before pivoting to an easing cycle in September in what saw key rates slashed from 27.5 percent to 27 percent and subsequently reduced to 26.5 percent in February this year.
Analysts say the central bank is unlikely to loosen policy until it is convinced inflation is on a durable downward path.
While the latest inflation figures point to gradual disinflation, economists argue that geopolitical tensions, exchange-rate risks and the prospect of election-related spending ahead of the 2027 general elections leave little room for premature easing.
“We projected that the MPR would remain at 26.50 percent throughout 2026,” said Kehinde Jones, head of research and strategy at Anchoria Securities Limited.
“The CBN will continue to adopt a data-dependent approach, with its decisions guided by the trend in inflation, exchange-rate stability and developments in the global economy.”
Jones said June’s softer-than-expected inflation reading is encouraging and suggests disinflation is beginning to take hold, supported by exchange-rate stability, improved food supply and easing global energy prices. Even so, he expects policymakers to maintain their cautious stance for the rest of the year.
Read also: CBN’s rate hold reinforces inflation fight despite easing price pressures
The outlook is echoed by Lagos-headquartered advisory firm United Capital, which expects inflation to continue moderating into 2027 but warns that the journey will remain uneven.
Sylvester Anaba, the firm’s head of research, said lower inflation readings should be supported in the coming months by favourable base effects, the harvest season, relatively stable exchange rates and the delayed impact of previous monetary tightening.
However, he said the central bank will likely require stronger evidence that inflation is sustainably declining before contemplating lower borrowing costs.
“The CBN will likely seek confirmation that inflation moderation is sustainable, external reserves remain adequate, exchange-rate stability persists and global oil and energy markets remain relatively calm,” Anaba said.
If those conditions are met, a modest 25-basis-point rate cut toward the end of 2026 appears more likely than an aggressive easing cycle, he added.
Several developments could still derail that outlook. One immediate concern is the dollar-denominated petrol sales by Dangote Refinery, halting the naira-for-crude arrangements that have helped limit pressure on the naira.
Analysts warn that if implemented in a manner that significantly increases foreign-exchange demand, it could weaken the naira and reintroduce imported inflation through higher transport and logistics costs.
Renewed escalation of the US-Iran war pose biggest risks to the Africa’s biggest oil producer’s disinflation outlook as swings in global oil prices continue to have a knock-on effect on local pump prices while driving up consumer prices.
Nigeria’s domestic political dynamics is equally viewed as one of the obstacles to lower interest rates, economists said.
Election-related spending has historically fuelled liquidity, boosted consumer demand and intensified pressure on the foreign-exchange market.
As political campaigns gather pace ahead of the January 2027 elections, analysts expect those risks to become more pronounced.
Tilewa Adebajo, chief executive officer of CFG Advisory, believes policymakers are already factoring those risks into their decision-making, even as Africa’s most populous economy continues to offer one of the highest real interest-rate premiums among emerging and frontier markets, helping sustain foreign portfolio investor appetite for local fixed-income assets.
“I think the election risk is already priced into that,” Adebajo said. “The central bank is going to maintain these interest rates all throughout this uncertainty that the election period might bring.”
He said institutional investors remain comfortable with the current policy stance and do not expect the CBN to begin lowering rates until after the election cycle has passed.
Unless inflation continues to slow, the naira remains broadly stable and global energy prices moderate, economists expect the Monetary Policy Committee to keep policy restrictive well into 2027, reinforcing the CBN’s focus on preserving macroeconomic stability over delivering short-term growth.
For businesses and households, that means borrowing costs are likely to remain elevated for longer, extending the squeeze on credit but strengthening the central bank’s campaign to entrench disinflation and maintain investor confidence.
