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Nigeria’s Central Bank Expected to Resume Interest Rate Cuts Next Week as Inflation Cools and Naira Strengthens
Nigeria’s central bank looks set to restart its easing cycle when its Monetary Policy Committee meets next week, according to a new analysis from Bank of America, which points to a combination of slowing inflation and a steadier naira as giving policymakers enough room to cut borrowing costs again after months of caution.
BofA analyst Raghav Adlakha wrote in a client note that Nigeria’s headline inflation, which slowed to 15.4 percent in August, alongside a naira that has gained roughly 8 percent against the dollar so far this year, has created what he described as room for the Central Bank of Nigeria to begin cautiously easing monetary policy. That framing, cautious rather than aggressive, matches how Nigeria’s central bank has approached rate decisions throughout the past year, moving in small, deliberate steps rather than making dramatic swings in either direction.
The latest inflation figures back up that cautious optimism. Data from Nigeria’s National Bureau of Statistics showed headline inflation easing to 15.39 percent year-on-year in August, down slightly from 15.43 percent in July, a modest four basis point decline but one that resumes a downward trend that had briefly stalled earlier in the year. The Monetary Policy Committee, led by CBN Governor Olayemi Cardoso, is expected to weigh that latest reading heavily when it meets next week to decide whether to hold or cut the benchmark Monetary Policy Rate, currently sitting at 26.50 percent.
Getting to this point hasn’t been a straight line. Nigeria delivered its first interest rate cut since 2020 back in September 2025, trimming the rate by 50 basis points to 27 percent after inflation had eased for five consecutive months, with the broader economy also posting its strongest quarterly growth since 2021 at the time. The central bank held rates steady at its following meeting in November 2025, wanting to protect the progress it had already made on inflation before cutting further. Then came another 50 basis point cut in February 2026, bringing the rate down to its current 26.50 percent level, a decision Cardoso tied directly to what he called an ongoing disinflation trajectory, supported by the delayed effects of earlier rate hikes finally working through the economy, along with sustained exchange rate stability and improved food supply.
That easing momentum then ran into some genuine external turbulence. Headline inflation actually ticked back up to 15.69 percent in April, driven largely by fuel price increases tied to the wider US-Israel conflict with Iran, which fed through into higher food costs across the country. Faced with that uncertainty, the central bank held rates unchanged at both its May and July meetings, with Cardoso explaining in July that authorities had genuinely expected to cut rates as inflation cooled, but that the longer-than-anticipated Middle East conflict had clouded that outlook enough to justify waiting for clearer data before moving again. Throughout that stretch, Cardoso repeatedly emphasized that Nigeria’s economy, as Africa’s largest oil producer, had shown real resilience to those external shocks thanks partly to the country’s own growing domestic refining capacity, which has helped cushion how much global oil and fuel price swings actually reach Nigerian consumers.
With August’s inflation print resuming its downward path and the naira continuing to hold its ground rather than sliding, the conditions that stalled the easing cycle back in the spring appear to have eased enough for the central bank to seriously consider moving again. The naira’s roughly 8 percent gain this year is a particularly notable data point given Nigeria’s currency has spent much of the past several years under sustained pressure following the country’s major foreign exchange reforms, so a genuinely stronger and more stable naira removes one of the key risks that typically makes central banks hesitant to loosen monetary policy, since a weakening currency tends to feed directly back into higher import costs and renewed inflationary pressure.
Nigeria’s broader policy framework has stayed fairly consistent through this whole stretch regardless of whether rates moved or held. The asymmetric corridor around the policy rate has remained fixed at plus 50 and minus 450 basis points, the Cash Reserve Ratio has stayed at 45 percent for deposit money banks and 16 percent for merchant banks, and the liquidity ratio has held steady at 30 percent throughout the recent cutting and pausing cycle. Cardoso and the rest of the 11-member Monetary Policy Committee have generally signaled that these structural settings aren’t where the near-term action is happening, with most of the actual policy debate concentrated specifically around the benchmark rate itself and how quickly it can safely come down without reigniting inflation or destabilizing the currency.
Nigeria’s central bank has been fairly explicit that its longer-term ambition goes well beyond where inflation currently sits. Even with headline inflation now hovering in the mid-15 percent range, down substantially from the roughly 22 percent levels seen in mid-2025, Cardoso has previously said the central bank ultimately wants to see inflation fall into single digits, a goal that remains a considerable distance away even with the recent progress. That longer runway is likely part of why analysts like Adlakha are framing next week’s expected move as cautious easing rather than the start of anything more aggressive, since the central bank still has meaningful ground to cover before it can genuinely declare Nigeria’s inflation problem solved.
For now, all eyes are on next week’s Monetary Policy Committee meeting, where a rate cut would mark the third reduction in this easing cycle and the clearest signal yet that Nigeria’s central bank believes the worst of its recent inflation and currency pressures are, at least for the moment, behind it.
