Middle East tensions forced CBN to hold rates – Cardoso

• Says single-digit inflation target still on track

• Says banks yet to meet capital threshold remain under watch

The Central Bank of Nigeria (CBN) has said renewed geopolitical tensions in the Middle East forced the Monetary Policy Committee (MPC) to retain the Monetary Policy Rate (MPR) at 26.5 per cent, despite expectations that inflation would continue its downward trajectory.

CBN Governor Olayemi Cardoso, who announced the outcome of the MPC’s 306th meeting in Abuja on Tuesday, said the committee opted to maintain its tight monetary stance to guard against fresh inflationary pressures arising from rising global energy prices and supply-chain disruptions linked to the conflict in the Middle East.

The committee also retained the asymmetric corridor around the MPR at +500/-100 basis points, the Cash Reserve Ratio (CRR) at 45 per cent for Deposit Money Banks and 16 per cent for Merchant Banks, while the liquidity ratio was left unchanged.

According to Cardoso, although headline inflation moderated marginally to 15.91 per cent in June from 15.93 per cent in May, external developments made it necessary to proceed cautiously.

“The recent resurgence of hostilities in the Middle East has heightened global uncertainties, particularly through its impact on energy prices and the potential pass-through to domestic inflation. In view of these evolving developments, maintaining the current monetary policy stance remains appropriate,” he said.

Responding to questions from journalists at the briefing, Cardoso said the apex bank had expected inflation to be firmly on course towards single digits by early 2027 before the renewed geopolitical crisis altered the outlook.

He said: “I think it is appropriate to remember where we are coming from, 11 months of disinflation. Quite frankly, from every indication, we were expecting that by early 2027 we would be where we want to be in terms of inflation and firmly on track for single digits.

“Unfortunately, these were shocks that were not anticipated in that manner, and they have gone on a lot longer than could have been anticipated. It is not something we can wish away; it is something we need to deal with.”

He, however, maintained that the CBN had not abandoned its inflation objective.

“We are pleased that inflation has moderated, albeit slightly. That gives us an indication that the tools we have implemented are yielding results. We will do what we need to do to contain rising inflation and bring it to the single digit that we have said earlier, and we still continue to stand by that.”

The governor stressed that stronger collaboration between fiscal and monetary authorities would remain critical to cushioning the economy from external shocks and sustaining macroeconomic stability.

On the foreign exchange market, Cardoso dismissed suggestions that the naira should be fixed at any particular level, insisting that the apex bank would continue to support a transparent, liquid and market-driven exchange-rate system.

“Our view is to continue on the path we embarked upon, to ensure we have a market that is transparent, liquid and based on willing buyer, willing seller. Where the exchange rate settles is ultimately a function of economic fundamentals,” he said.

Cardoso added that Nigeria requires a competitive currency capable of supporting exports, investment and domestic production.

The CBN governor also reassured Nigerians that banks yet to meet the new capital requirements remain under close regulatory supervision and pose no threat to financial system stability.

He disclosed that 33 of the country’s 37 banks successfully met the recapitalisation deadline without the need for an extension, describing the exercise as a major achievement for the banking industry.

“The recapitalisation exercise has been successful. Our industry has been considerably strengthened, and as banks continue to build their capital buffers, Nigerians will see an even healthier banking system,” he said.

Speaking on the few lenders that have yet to meet the capital threshold, Cardoso explained that many had experienced regulatory interventions that affected their timelines, but said the CBN was working with them to ensure compliance.

“As far as we are concerned, they are on track. Different alternatives are being explored to ensure they attain the same level as the other banks.

“I can confirm that Nigerians can continue their normal banking activities. Those banks are under our guidance, they are strictly under our supervision, and you have nothing to worry about,” he said.

Cardoso also attributed the recent decline in bank lending to the discontinuation of regulatory forbearance introduced during the COVID-19 pandemic, describing it as a temporary adjustment rather than a sign of weakness in the financial system.

He said banks were recalibrating their loan portfolios as they strengthened their balance sheets, adding that credit growth would rebound as institutions completed the transition to a stronger capital base.