- 27% benchmark under review
- Disinflation, currency stability vs. pre-election liquidity
- 2026 seen as transition year, split on rate cut
Financial markets are bracing for a potentially defining policy signal as the Central Bank of Nigeria (CBN) gathers for its February 23–24 Monetary Policy Committee meeting, balancing sustained disinflation and currency stability against the risks posed by pre-election fiscal liquidity.
The forthcoming decision concerns not only the benchmark rate, maintained at 27 percent when it last met, but also the sustainability of a reform programme that restored macroeconomic equilibrium following sustained financial turbulence. The Committee must carefully balance the case for gradual unwinding of an exceptionally tight policy regime against the risk that election-related fiscal liquidity could swiftly undermine recent stabilisation gains.
Headline inflation has now declined for eleven consecutive months, easing to 15.1 percent in January 2026, a moderation from peaks that defined much of the previous year. The deceleration has been supported by softer food prices, relative stability in domestic energy costs and an appreciating naira that has tempered imported price pressures. For dovish analysts, this sustained disinflation provides the statistical and economic justification for at least a symbolic rate cut, signalling confidence that the worst of the inflation shock has passed.
Yet monetary policy is rarely decided on inflation prints alone. Liquidity dynamics, particularly in a forthcoming election year, loom large over the deliberations. Analysts widely acknowledge that fiscal injections associated with the political cycle represent the most immediate upside risk to both inflation and exchange rate stability. Historically, Nigerian election periods have been accompanied by a rise in liquidity as campaign-related expenditures filter into the banking system, amplifying transactional demand and often spilling over into currency markets.
Research houses monitoring pre-MPC conditions argue that this liquidity overhang is not hypothetical but already materialising. According to CardinalStone Research, the CBN has net-issued N10.9 trillion in Open Market Operations this year alone, underscoring the scale of sterilisation efforts required to absorb excess funds. The firm estimates that of the N44.2 trillion in projected liquidity expected to enter the system in 2026, more than 75 percent could arrive in the first half of the year, coinciding with peak election-related disbursements.
Such projections explain why a majority of market economists assign a higher probability to a policy hold rather than an immediate easing. FMDA Research has indicated that its baseline expectation is for the MPC to maintain the MPR at 27 percent, arguing that inflation stability and liquidity control must take precedence over growth considerations at this juncture. CardinalStone assigns a 60 percent probability to a hold decision, contending that rate stability would reinforce policy credibility and signal continued vigilance against inflation resurgence.
The central bank’s internal posture appears aligned with these assessments. At its previous meeting in November 2025, fiscal expansion linked to the electoral cycle was explicitly identified as a key upside risk to macroeconomic stability. Nearly eight of the eleven MPC members flagged election-related liquidity injections as a material concern, reflecting a committee increasingly attentive to financial conditions rather than simply backward-looking inflation metrics.
Governor Olayemi Cardoso has reinforced this cautious tone in public remarks. Speaking at a recent National Economic Council session in Abuja, he warned that election cycles have historically seen significant liquidity pumped into the system, necessitating close monitoring to prevent destabilisation of reform gains.
The macroeconomic backdrop, however, is undeniably more supportive of policy flexibility than at any point in the past two years. External reserves have climbed to $47.8 billion, representing a 2.4 percent increase since November. The naira has appreciated about 6.7 percent year-to-date in the official market to N1,355 per dollar, buoyed by improved investor sentiment and robust capital inflows. Foreign exchange premiums between official and parallel markets have narrowed to low single digits, reinforcing perceptions of currency convergence and improved market functioning.
Such developments have emboldened a cohort of analysts advocating a calibrated rate cut. Lukman Otunuga of FXTM argues that moderating food inflation, currency appreciation and stable fuel prices collectively strengthen the case for easing. In his view, the debate is less about whether the MPC will cut rates and more about the magnitude of the adjustment. He contends that maintaining excessively restrictive rates in the face of sustained disinflation risks imposing unnecessary constraints on credit expansion and corporate investment.
Similarly, Asimiyu Damilare, head of research at Afrinvest West Africa, interprets the November MPC voting pattern as evidence that a pivot may already be forming within the committee. At that meeting, five members voted for a rate cut while six opted to retain the MPR at 27 percent, indicating a near-even split. Damilare notes that such a narrow margin signals an MPC increasingly receptive to normalisation, particularly as inflation expectations moderate and external buffers strengthen.
Beyond inflation and currency dynamics, other macro indicators reinforce the narrative of stabilisation. Purchasing Managers’ Index readings have improved to 55.4 in October from 54.0 in September and 49.6 a year earlier, pointing to expanding private sector activity. The International Monetary Fund (IMF) has revised Nigeria’s 2025 growth projection upward to 3.9 percent from 3.4 percent, citing reform momentum and improved macro coordination. Gross reserves have risen from $41 billion at the September MPC meeting to $44 billion by late November, while Nigeria’s removal from the Financial Action Task Force grey list has enhanced its financial system credibility.
Sovereign credit dynamics have also improved at the margin. S&P Global Ratings reaffirmed Nigeria’s currency rating at B–/B while revising its outlook to positive from stable, signalling confidence in reform continuity. A recent $2.3 billion Eurobond issuance attracted $10.65 billion in subscriptions, underscoring strong investor appetite even as total public debt now exceeds N154 trillion.
These positive signals have led some equity-focused analysts to emphasise the growth-enhancing benefits of a rate cut.
Ayodele Akinwunmi, chief economist at United Capital, argues that a lower interest-rate environment would enhance corporate earnings potential and support equity valuations. Samuel Sule of Renaissance Capital Africa anticipates a rally in yields that would set the stage for a downward review in the MPR, implying that bond markets may already be pricing in eventual easing.
Nevertheless, countervailing risks remain pronounced. Olumayowa Bolujoko, portfolio manager at CFG Africa, highlights a 10.2 percent month-on-month increase in currency outside banks as evidence of elevated transactional liquidity in the real economy. Such dynamics, he argues, could sustain inflationary momentum despite favourable base effects. Moreover, maintaining yield attractiveness to support foreign portfolio investment inflows remains critical, given that exchange rate stability remains sensitive to capital movements.
CardinalStone estimates foreign portfolio positioning in Nigerian markets at between $12 billion and $14 billion, warning that recent currency gains could incentivise profit-taking should election-related uncertainty intensify. Any significant capital outflows would increase exchange rate volatility and complicate monetary policy decisions, particularly if accompanied by renewed liquidity surges.
From a structural standpoint, analysts caution that disinflation must be durable rather than episodic. While year-on-year readings have declined, month-on-month pressures have occasionally resurfaced, reflecting persistent structural drivers including energy costs, logistics bottlenecks and insecurity.
Meristem Research anticipates that core inflation may continue its downward trajectory supported by exchange rate stability, yet warns that elevated domestic energy prices and heightened consumer demand could exert upward pressure on monthly figures.
Coronation Research adopts a similar prudential stance, arguing that the MPC is likely to await clear evidence of sustained inflation moderation before deepening any easing path commenced previously. In its assessment, maintaining a tight stance at 27 percent would help anchor expectations and preserve hard-won credibility.
The intersection of politics and monetary policy adds another layer of uncertainty. Election cycles typically intensify fiscal dominance concerns in emerging economies, increasing the likelihood of accommodative bias. However, the central bank’s leadership has indicated a commitment to sterilisation strategies, favouring OMOs and interest rate corridor management over premature adjustments to the benchmark rate.
Tilewa Adebajo of CFG Advisory emphasises that the true test of the new inflation series following CPI rebasing will lie in the scale of any rate cuts, if delivered. He cautions that statistical adjustments do not equate to a sudden reduction in the cost of living, implying that policymakers must remain attentive to lived inflation experiences even as headline figures moderate.
Meanwhile, AAG Capital projects that inflation could ease further to 14.27 percent year-on-year in November, advocating for a 100 to 150 basis point rate cut should the disinflation trend persist.
Nigeria’s removal from the FATF grey list and positive rating outlook revisions have strengthened its reform credentials internationally. Yet insecurity and structural inflation drivers continue to pose risks, with potential disruptions to agricultural output and supply chains capable of reversing food price gains. External geopolitical designations and domestic security challenges could also influence investor sentiment in unpredictable ways.
Rather than a routine policy adjustment, the February meeting will signal how the Committee intends to sequence normalisation amid lingering structural and political risks. A hold decision would prioritise macroeconomic stability and underscore concerns about liquidity expansion, while a rate cut would reflect confidence in the sustainability of the disinflation trend and the adequacy of external buffers.
Current market pricing indicates investors are prepared for either result. Yield curve positioning implies expectations of gradual easing over time, placing heightened importance on the CBN’s forward guidance in shaping financial conditions and preserving credibility.
