Nigeria’s Monetary Policy Committee is set to meet this week with conflicting economic signals as inflation continues to slow while rising global oil prices create fresh pressure on the economy. The committee faces a decision on whether to reduce the benchmark interest rate after three consecutive months of easing inflation or maintain its current position because of rising energy costs and increased liquidity ahead of the 2027 elections.
Headline inflation fell slightly to 15.39 percent in August from 15.43 percent in July and 15.91 percent in June, according to the latest data.The monthly figures also showed stronger signs of easing price pressures. Month on month inflation dropped to 0.71 percent in August from 1.57 percent in July, marking its lowest level of the year.Core inflation also declined to 13.29 percent from 14.97 percent, while food inflation fell to 19.57 percent. The decline in food inflation was its first in six months.
Food inflation on a monthly basis dropped significantly to 1.02 percent from 5.56 percent in July. The improving inflation figures have strengthened arguments for lower interest rates. However, rising crude oil prices and concerns about increased spending ahead of the election are making the decision more difficult for policymakers. Brent crude has risen above $100 per barrel following renewed tensions in the Middle East. Higher global oil prices could increase domestic energy, transportation and logistics costs and put pressure on inflation. The impact is already being seen in Nigeria’s fuel market, with Dangote Refinery recently increasing its petrol price to N1,350 per litre.
Nigeria’s external position has also shown some improvement. Gross external reserves stood at $54.209 billion as of September 7, while remittances through licensed operators reached a record $947 million in July. Despite the improvement in inflation and other economic indicators, several analysts expect the Central Bank of Nigeria to maintain the Monetary Policy Rate at 26.5 percent. Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, expects the CBN to keep the rate unchanged.
“We see the CBN on hold at 26.5 percent in September; post-election easing will likely be preferred,” Khan said. She also warned that continued pressure from fuel prices and uncertainty surrounding the Middle East conflict could keep crude oil prices above $100 per barrel.
“With little end in sight to the Middle East conflict and oil prices potentially supported above $100/bbl, we expect SSA central banks to adopt a cautious approach to monetary policy at next week’s MPC meetings,” she said.
Other analysts have offered different views on what the CBN should do.Ayodeji Ebo, chief executive officer of MDU Capital, said the decline in inflation was encouraging but argued that the central bank should wait for stronger evidence before cutting rates.“The decline in headline inflation to 15.39 percent is encouraging, but I believe it is still too early for the CBN to cut interest rates. Food inflation remains elevated, while energy and transportation costs continue to exert pressure on prices. The CBN will most likely maintain its current stance until there is clearer evidence of sustained and broad-based moderation in inflation,” he said.
However, Abayomi Fashina, group risk manager at STL Capital, expects a reduction in the policy rate.“Since inflation is declining and interest rates are dropping across the board, I am expecting a 50-basis-point reduction in the policy rate,” Fashina said.At 26.5 percent, the MPR remains significantly above the August inflation rate of 15.39 percent. This gap indicates that monetary policy remains tight relative to current inflation. Faruq Quadri, an economist at SPEC-Matrix, said rising energy prices could reverse some of the progress made in reducing inflation.
“The MPC is likely to hold the rate at this meeting because of the renewed energy shock. Crude oil prices have risen sharply, and this is already feeding into transport fares. If that persists, it could reverse some of the gains we have seen in disinflation,” Quadri said.
He also pointed to increased liquidity linked to the approaching election cycle as another risk to price stability.“The election cycle is likely to move in the same direction as liquidity, putting additional pressure on prices. In that environment, holding the rate is safer to avoid further distortions to price stability,”
Quadri said.United Capital Research also expects the MPC to maintain the MPR at 26.5 percent while continuing to monitor inflation, exchange rate conditions and other economic developments.The MPC last met in July and retained the MPR at 26.5 percent. It also maintained the existing Standing Facilities Corridor and Cash Reserve Requirement for banks.The committee will now weigh the recent improvement in inflation against rising oil prices, energy costs, liquidity conditions and broader economic risks as it decides its next monetary policy direction.
