CBN Cuts Interest Rate to 26.5%

The Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) by 50 basis points to 26.5 percent, marking the first rate cut of 2026 and signalling a policy pivot as macroeconomic conditions continue to improve.

CBN Governor Olayemi Cardoso announced the decision on Tuesday in Abuja following the 304th meeting of the Monetary Policy Committee (MPC), disclosing that all members unanimously agreed on the move. The new rate represents the lowest policy rate since May 2024, when the MPR stood at 26.25 percent.

“The committee decided to reduce the monetary policy rate by 50 basis points to 26.50 percent,” Cardoso told journalists. He added that the Standing Facilities corridor was adjusted to +50 to -450 basis points around the MPR, while other parameters remained unchanged.

Specifically, the committee retained the Cash Reserve Ratio (CRR) at 45 percent for commercial banks and 16 percent for merchant banks, while the 75 percent CRR on non-TSA public sector deposits was equally maintained. The liquidity ratio was kept at 30 percent.

The decision marks a significant shift from the MPC’s previous meeting in November 2025, when the committee had retained the MPR at 27.0 percent amid lingering uncertainty about inflation trends. At that time, the vote was closely split, with six members favouring a hold and five supporting a cut, signalling a committee increasingly receptive to policy normalisation.

Macroeconomic Conditions Support Easing

Analysts had widely anticipated Tuesday’s move, citing a confluence of favourable domestic and external indicators. Nigeria’s headline inflation eased to 15.10 percent in January 2026, down marginally from 15.15 percent in December 2025, marking the eleventh consecutive month of declining inflation. Food inflation declined significantly to 8.89 percent year-on-year, supported by improved agricultural supply and harvest gains.

The moderation in inflation follows the rebasing of the Consumer Price Index by the National Bureau of Statistics, but underlying fundamentals have also strengthened. Exchange rate stability has dampened imported inflation, energy prices have remained relatively contained, and post-festive demand has cooled.

The naira has appreciated by approximately 6.7 percent year-to-date, trading at around N1,345 per dollar at the official market, driven by increased offshore participation in Nigeria’s FX market. Foreign inflows surged 111.5 percent month-on-month in January to $1.79 billion, supported by attractive real yields and improved investor confidence.

External reserves have risen 6.6 percent year-to-date to approximately $48.37 billion, providing policymakers with additional policy flexibility.

## A Calibrated Move

The 50 basis point cut strikes a middle ground between aggressive easing and maintaining a restrictive stance, according to analysts. With inflation at 15.10 percent and the policy rate now at 26.5 percent, real interest rates remain firmly positive, preserving Nigeria’s yield advantage while signalling responsiveness to improving fundamentals.

“The committee’s credibility hinges on its ability to balance competing objectives: anchoring inflation expectations, safeguarding currency stability, and supporting economic growth,” analysts noted ahead of the decision.

For businesses, the modest reduction in borrowing costs could improve financing conditions, particularly for non-oil sectors driving growth. The non-oil sector has remained resilient, with the composite Purchasing Managers’ Index climbing to 57.6 in December from 54.0 in September, indicating solid growth momentum.

The Nigerian equities market has already priced in expectations of easing, with the NGX swelling by approximately N25 trillion in the seven weeks leading to the MPC meeting. Market capitalisation closed last Friday at N125.1 trillion, up from N99.38 trillion recorded at the end of 2025.

Global Backdrop Supports Easing

The decision aligns with a broader trend across Africa, where policymakers from Zambia to the Democratic Republic of Congo are cutting rates as stronger currencies and lower oil prices help tame inflation.

Major central banks have paused their tightening cycles. The US Federal Reserve held rates steady at 3.50–3.75 percent in January, while the Bank of England maintained its bank rate at 3.75 percent in February. The resulting stabilisation in global liquidity conditions, combined with a softer US dollar, has improved capital flow dynamics for higher-yielding markets like Nigeria.

The International Monetary Fund recently revised its 2026 global growth forecast slightly upward to 3.3 percent, reflecting resilience in advanced economies and continued expansion in several large emerging markets.

What Analysts Say

Afrinvest, which had projected a 50 to 100 basis point cut, described the move as a decisive though measured return to policy easing. The investment research firm noted that eleven consecutive months of moderation in inflation, alongside improvements in Nigeria’s external position, provided the CBN with “policy flexibility.”

Ayodele Akinwunmi, chief economist at United Capital Plc, had argued ahead of the meeting that a “modest adjustment of 50 basis points” would be appropriate to support the economy without risking stability.

Cordros Research analysts also expected the MPC to reduce the MPR by 50 basis points, noting that the committee’s previous caution was partly influenced by concerns about a potential short-term uptick in headline inflation that failed to materialise.