The International Monetary Fund (IMF) has backed Nigeria’s decision to ease monetary policy, saying the country has made significant progress in reducing inflation, although the fight against rising prices remains unfinished.
The Fund said Nigeria’s move towards lower interest rates was appropriate after a prolonged period of high inflation and elevated borrowing costs. However, it stressed that monetary conditions remain restrictive and warned that renewed price pressures could complicate further policy adjustments.
Zeine Zeidane, director of the IMF’s African Department, made the remarks during the release of the Fund’s October 2026 Regional Economic Outlook Update for Sub-Saharan Africa at the ongoing IMF and World Bank Group Annual Meetings in Bangkok, Thailand.
Zeidane said Nigeria had made meaningful progress in bringing inflation down from elevated levels, adding that the decision to begin normalising interest rates was appropriate given the progress achieved.
However, the IMF’s endorsement does not mean the country has overcome its inflation challenges or that further rate cuts are guaranteed.
Rising energy costs threaten inflation progress
The IMF warned that higher fuel and transport costs, alongside more expensive fertiliser, could put renewed pressure on consumer prices and food security across sub-Saharan Africa.
The Fund projected median inflation in the region to rise from 3.4 per cent in 2025 to 4.3 per cent in 2026 and 5 per cent in 2027.
These pressures could complicate decisions by central banks, particularly in countries that rely heavily on imports and have limited fiscal capacity to support households facing higher living costs.
The IMF said monetary tightening could still be necessary in some countries to prevent temporary price increases from becoming persistent inflation. It also noted that exchange-rate flexibility could help economies absorb external shocks and preserve foreign exchange reserves, depending on their exchange-rate arrangements.
Nigeria balances economic recovery with price stability
Nigeria has introduced major economic reforms, including foreign exchange market liberalisation and the removal of petrol subsidies, alongside tight monetary policy aimed at restoring macroeconomic stability.
While these measures have helped strengthen the country’s policy framework, households continue to face pressure from the cost of living.
Lower interest rates could reduce borrowing costs over time, improve access to credit and encourage business investment. However, easing monetary policy too quickly could risk reversing progress on inflation if prices begin rising again.
The IMF did not prescribe a specific interest rate for the Central Bank of Nigeria (CBN). Instead, its position highlights the need for policymakers to assess inflation trends and other economic risks before making further adjustments.
IMF urges targeted support for vulnerable households
The Fund also emphasised the need to protect vulnerable households from rising living costs without placing excessive pressure on government finances.
It recommended targeted support for those most in need rather than broad-based subsidies, which can be expensive and divert resources from productive investment.
For Nigeria, this means policymakers must balance the benefits of lower borrowing costs with the need to maintain price stability and protect household purchasing power.
The IMF’s latest assessment offers support for Nigeria’s gradual monetary easing, but it also signals that future decisions will need to remain responsive to inflation developments.
