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By Chinwendu Obienyi
As Nigeria’s monetary authorities prepare to convene today, attention will be firmly fixed on the outcome of the first policy meeting of the year.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) faces a markedly different macroeconomic landscape from the one that shaped its cautious pause in November.
Although inflation is moderating, it inched down at the end of January by 5 basis points (bps) to 15.10 per cent year-on-year (y/y) in December 2025, extending the dis-inflation trend observed in 2025.
The naira is appreciating, external reserves are rising and global monetary conditions, while uncertain, are no longer tightening in a synchronised fashion.
Against this backdrop, some analysts expect the Committee to resume its easing cycle with a 50 basis point reduction in the Monetary Policy Rate (MPR) to 26.50 per cent.
The anticipated move would mark a symbolic shift from defense to recalibration. It would signal that the MPC believes the worst of Nigeria’s inflation shock has passed, and that the balance of risks is tilting toward supporting growth without jeopardizing hard-won currency stability.
Shifting global backdrop
Since the MPC last met in November, the global environment has grown more complex. Heightened geopolitical tensions, renewed trade frictions, and policy unpredictability in major economies have unsettled markets. Yet the story is not one of uniform deterioration.
The US dollar, after a prolonged period of strength, has softened amid investor concerns over policy coherence and fiscal sustainability in Washington. For emerging and frontier markets, this shift has provided a welcome reprieve.
The January meeting of the Federal Reserve resulted in rates being held steady at 3.50–3.75 per cent, with officials reiterating a data-dependent stance. In the United Kingdom, the Bank of England also maintained its bank rate at 3.75 per cent in February, though by a narrow 5–4 vote that exposed divisions over persistent services inflation and softening domestic demand.
Meanwhile, the European Central Bank kept its policy settings unchanged at its 5 February meeting, citing moderating inflation but ongoing uncertainty tied to trade policy and geopolitics.
In short, major central banks are no longer tightening aggressively, but neither are they rushing toward easing. The resulting pause has stabilized global liquidity conditions. Combined with the softer dollar, this has improved capital flow dynamics for higher-yielding markets like Nigeria.
The International Monetary Fund (IMF) recently revised its 2026 global growth forecast slightly upward to 3.3 per cent y/y, reflecting resilience in advanced economies and continued expansion in several large emerging markets. While growth remains uneven and below pre-pandemic averages, the absence of a synchronized global downturn reduces external risks for Nigeria in the near term.
Non-oil momentum offsets oil slippage
Domestically, economic activity has remained broadly resilient. Data from the Central Bank’s composite Purchasing Managers’ Index (PMI) show expansion across agriculture, industry, and services in the fourth quarter of 2025. The composite PMI climbed to 57.6 in December from 54.0 in September, indicating solid growth momentum.
The non-oil sector appears to be the primary engine. Seasonal spending during the festive period, stronger agricultural output linked to harvest cycles, and ongoing expansion in digital and service-oriented activities have underpinned output gains.
Analysts estimate non-oil GDP growth accelerated to 4.11 percent year-on-year in Q4-25, up from 3.91 percent in the previous quarter.
By contrast, oil production has faltered. Data from the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) show crude output averaged 1.58 million barrels per day in Q4 2025, down from 1.64 mb/d in Q3. Planned maintenance at deep-water assets and operational vulnerabilities contributed to the sequential decline.
The oil sector is estimated to have contracted by 2.83 per cent y/y in Q4.
Overall, real GDP is projected to have expanded by 3.92 per cent y/y in Q4 2025, marginally below Q3 but above the corresponding period in 2024. Full-year growth for 2025 is estimated at 3.81 per cent, an improvement over 3.34 per cent in 2024.
This growth profile, steady but not overheating, provides space for cautious monetary easing, especially as inflation pressures recede.
Inflation’s unexpected downturn
Perhaps the most consequential development ahead of the February meeting has been the surprising moderation in inflation. Data from the National Bureau of Statistics (NBS) show headline inflation eased marginally to 15.10 per cent y/y in January from 15.15 per cent in December, defying widespread expectations of a sharp increase following the rebasing of the Consumer Price Index (CPI).
Food inflation declined significantly, while core inflation also moderated. On a month-on-month basis, the CPI index fell by 2.88 per cent, marking a sharp reversal from December’s increase.
Part of this decline likely reflects statistical effects linked to the revised CPI basket and base-year adjustments. Nonetheless, underlying fundamentals also appear more supportive. Exchange rate stability has dampened imported inflation, energy prices have remained relatively contained, and post-festive demand has cooled.
Looking ahead, inflation may tick higher on a month-on-month (m/m) basis in February due to firmer farm produce prices and moderate energy costs. However, favorable base effects and the appreciating naira are expected to push headline inflation lower on a y/y basis, potentially to around 14.35 per cent.
Hence, the key question is whether this dis-inflation trend is durable. If so, it strengthens the case for easing.
Stronger Naira, rising reserves
The naira’s recent performance has been striking. Year-to-date, the currency has appreciated by 6.7 per cent to N1,345.00/$1 as of February 19. This rally has been driven by increased offshore participation in Nigeria’s FX market, supported by attractive real yields and improved investor confidence.
According to data from FMDQ, foreign inflows surged 111.5 per cent month-on-month in January to $1.79 billion, led by higher foreign portfolio investment (FPI) and corporate flows. Although domestic inflows declined, total inflows remained robust at $3.00 billion.
External reserves have also strengthened, rising 6.6 per cent year-to-date to $48.37 billion as of mid-February. Improved oil-related inflows, FX purchases from foreign investors, and reduced external debt repayments have supported this accretion.
The combination of a softer dollar and high domestic yields has sustained foreign investor interest, reinforcing the naira’s appreciation and reducing near-term inflation risks. A stronger currency also enhances the central bank’s capacity to smooth volatility, further anchoring expectations.
Why a 50bps cut makes sense
At its previous meeting, the MPC opted to hold the MPR at 27.0 per cent, reflecting caution amid uncertainties surrounding the rebased CPI and concerns about a potential inflation spike in December. The vote split, six members favoring a hold, five supporting a 50bps cut, highlighted internal divisions.
That anticipated spike failed to materialize. Instead, inflation moderated further in January. While technical factors may have amplified the decline, there is little evidence of imminent distortions that would undermine the broader dis-inflation trend.
Moreover, real interest rates remain elevated. With inflation at 15.10 per cent and the policy rate at 27.0 percent, monetary conditions are highly restrictive. A modest 50bps reduction would still leave policy firmly tight, preserving Nigeria’s yield advantage while signaling responsiveness to improving fundamentals.
Importantly, easing at this juncture does not imply complacency. Global uncertainties persist, including geopolitical tensions and trade policy shifts. However, the current configuration, stable currency, moderating inflation, resilient non-oil growth, and rising reserves, provides a window for measured recalibration.
Experts’ views
Afrinvest is projecting a decisive, though measured, return to policy easing, with a rate cut of between 50 and 100 basis points firmly on the table.
In its latest macroeconomic outlook, the investment research firm argues that a convergence of favourable domestic and external indicators now provides policymakers with sufficient latitude to loosen monetary conditions after months of caution.
“Against this backdrop and other favourable domestic & external macro-indicators pivot, we anticipate a modest policy easing of 50-100bps at the MPC meeting slated today. We anchor our view on eleven consecutive months of moderation in inflation to 15.1 per cent in January 2026.
The firm also added that the dis-inflation trend is complemented by improvements in Nigeria’s external position.
Foreign exchange reserves have risen by 2.4 per cent since November to $47.8 billion. The accretion reflects improved FX inflows, particularly from foreign portfolio investors attracted by Nigeria’s elevated real yields, as well as stronger oil receipts and reduced external debt service obligations.
According to the firm, stable energy prices, notably Premium Motor Spirit (PMS), have also helped anchor inflation expectations, removing one of the most volatile and politically sensitive drivers of consumer price spikes.
Taken together, Afrinvest contends that these factors provide the CBN with “policy flexibility”, a phrase that captures the essence of the current debate. Monetary easing is no longer constrained by imminent FX instability or runaway price dynamics.
Appearing to concur with Afrinvest,, analysts at Cordros Research, said that despite sustained moderation in inflation, the MPC has continued to adopt a cautious approach to policy adjustment, partly reflecting, in their view, technical uncertainties surrounding the rebased CPI series.
“Beyond the Committee’s official rationale, we believe the decision to maintain the policy rate at the previous meeting was partly influenced by concerns about a potential short term uptick in headline inflation in December.
This caution was evident in the narrow split reflected in the published personal statements, where six members voted to retain the MPR at 27.0 per cent, citing the risk of a short-term rebound in headline inflation driven by base effects, while five members supported a 50bps cut.
On this basis, we expect the MPC to reduce the Monetary Policy Rate by 50bps to 26.50 per cent at its upcoming meeting, while leaving all other policy parameters unchanged”, they said.
Conclusion
The MPC’s credibility hinges on its ability to balance competing objectives: anchoring inflation expectations, safeguarding currency stability, and supporting economic growth.
Premature or aggressive easing could risk capital outflows and renewed exchange rate pressures. Conversely, maintaining an excessively restrictive stance could unnecessarily constrain credit and investment.
A 50bps cut strikes a middle ground. It acknowledges progress on inflation and external stability while maintaining a cautious, data-dependent posture. By leaving other policy parameters unchanged, the committee would signal continuity and prudence.
For businesses, lower borrowing costs, however modest, could improve financing conditions, particularly for non-oil sectors driving growth. For investors, sustained high real yields and currency stability remain attractive.
Markets appear positioned for easing. If delivered, the decision would mark the resumption of a gradual normalization process rather than a pivot to aggressive stimulus.
