MPC: Experts split on CBN's interest rate move

As the Central Bank of Nigeria (CBN)’s Monetary Policy Committee (MPC) prepares to meet, economists are divided over the plausible decision of the committee on benchmark interest rate.

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At the end of its 305th MPC meeting held from 19 to 20 May in Abuja, the MPC retained the Monetary Policy Rate (MPR), its benchmark interest rate, at 26.5 per cent.

The decision followed a 50-basis-point reduction in February, when the committee lowered the MPR from 27 per cent to 26.5 per cent after keeping the rate unchanged at 27 per cent since November 2025.

Explaining the May decision, CBN Governor Olayemi Cardoso said the committee opted to hold the benchmark rate because of a recent uptick in inflation and external shocks.

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“The MPC recognises its transitory nature and remains confident that the current macroeconomic environment is sufficiently robust to support a return to disinflation,” Mr Cardoso said.

Data from the National Bureau of Statistics (NBS) showed that Nigeria’s headline inflation rose for the third consecutive month to 15.93 per cent in May, from 15.69 per cent in April and 15.38 per cent in March.

The NBS attributed the increase largely to higher food prices, driven by rising global oil prices following tensions in the Middle East, which disrupted oil shipping through the Strait of Hormuz, a key global oil transit route.

Nigeria’s headline inflation had been on a downward trajectory through 2025 and into early 2026 before geopolitical tensions in the Middle East triggered fresh inflationary pressures.

The conflict involving the United States, Israel, and Iran pushed up global oil prices, increasing transportation, food, and fertiliser costs.

Although the parties reached a ceasefire on 17 June, creating a window for negotiations, renewed hostilities have continued to fuel uncertainty in global energy markets and shipping through the Strait of Hormuz.

Ahead of the MPC’s next meeting, scheduled for 20 and 21 July, economists who spoke with PREMIUM TIMES offered differing views on the committee’s next policy move.

Varied Expectations

While some expect policymakers to maintain the current benchmark rate, another expert believes easing inflation and improving macroeconomic conditions could justify the start of a monetary easing cycle.

Felicia Awolope, an economist and investment researcher at Meristem Securities Limited, expects the Central Bank of Nigeria (CBN) to retain the benchmark interest rate at its next Monetary Policy Committee (MPC) meeting, citing the recent uptick in inflation driven by geopolitical tensions in the Middle East.

She said the ongoing conflict could keep global interest rates elevated, reinforcing the case for the CBN to maintain its current monetary policy stance.

“Inflationary risks are still very much present, particularly with the ongoing geopolitical tensions in the global space, so that should reduce the likelihood of a cut.

“The fact that global interest rates might also remain higher for longer due to this same price risk also supports a hold stance,” Ms Awolope said.

She added that the committee is also unlikely to raise the Monetary Policy Rate (MPR), arguing that current pressures are not expected to push inflation significantly higher in the near term.

“I don’t expect a hike because pressures are not expected to escalate inflation figures too significantly in the near term.

“So the MPC is not likely to hike and worsen financing conditions for the real sector. I expect a hold stance,” she added.

In a similar vein, Matilda Adefalujo, an investment research analyst at Meristem Securities Limited, forecast that the MPC would maintain the MPR at 26.50 per cent throughout the second half of 2026, saying the CBN is likely to adopt a cautious approach while monitoring the country’s inflation trajectory.

She said maintaining attractive interest rates in an environment where global rates may remain higher for longer, coupled with persistent price uncertainty, strengthens the case for holding the benchmark rate.

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“We expect the MPC to hold the MPR at 26.50 per cent through H2:2026, adopting a cautious wait-and-see stance as it monitors the inflation trajectory.

“The moderate pace of the recent inflation uptick affords the monetary authority room to pause, while the need to maintain attractive rates amid a potentially higher-for-longer global interest rate environment and persistent price uncertainty reinforces this stance,” she said.

Ms Adefalujo noted that raising borrowing costs prematurely could further weaken demand in an already strained economy, while elevated inflation makes a rate cut difficult to justify.

“Additionally, a premature hike risks further demand reduction in an already strained environment, while the case for a cut appears unlikely against a backdrop of prolonged elevated inflation,” she said.

However, Aliyu Ilias, an economist and development expert, offered a contrasting outlook, predicting that the CBN would cut the MPR by at least 50 basis points at its next meeting.

He argued that improving macroeconomic stability provides room for monetary easing, adding that sustaining high interest rates in pursuit of lower inflation could come at the expense of economic growth.

“The MPC meeting is expected to cut the MPR by at least 50 basis points, this is because there is a gradual easing and we cannot continue to sacrifice growth to reduce inflation, it appears counterproductive,” he said.

Mr Ilias also expressed concern about the impact of high borrowing costs on businesses, particularly manufacturers and Micro, Small, and Medium Enterprises (MSMEs), saying higher rates could further weaken the sectors.

“Industry, manufacturing sector, and MSMEs are weakened with this handling of MPR,” Mr Ilias said.