Nigeria’s Monetary Policy Committee (MPC) is meeting this week with a difficult decision before it: whether to cut interest rates following three consecutive months of slower inflation or maintain the current rate amid rising global oil prices and concerns about increased liquidity ahead of the 2027 elections.
Headline inflation eased to 15.39 percent in August, down from 15.43 percent in July and 15.91 percent in June, continuing the recent disinflationary trend.
The monthly figures also showed stronger improvement. 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 declined from 14.97 percent to 13.29 percent, while food inflation fell to 19.57 percent, recording its first decline in six months.
Food inflation on a monthly basis also dropped significantly to 1.02 percent from 5.56 percent. The figures provide a stronger indication of easing price pressures than those available during the MPC’s previous two meetings.
Nigeria’s external position has also strengthened. Gross external reserves stood at $54.209 billion as of September 7, while remittances through licensed operators reached a record $947 million in July. Conditions in the money market have also become more consistent with the possibility of lower interest rates.
However, rising international oil prices could complicate the situation. Brent crude has moved above $100 per barrel following renewed tensions in the Middle East, raising concerns about another wave of energy-related inflation. The increase has already affected domestic fuel prices, with the Dangote Refinery recently raising its petrol pump price to N1,350 per litre.
Analysts have warned that higher transportation and logistics costs, combined with increased political spending as the 2027 election approaches, could put pressure on the recent gains made in controlling inflation.
Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, expects the Central Bank of Nigeria (CBN) to leave its policy rate at 26.5 percent in September, with possible easing after the election.
“We see the CBN on hold at 26.5 percent in September; post-election easing will likely be preferred,” Khan said.
She added that persistent fuel-price pressures and uncertainty surrounding the Middle East conflict could keep crude oil prices above $100 per barrel, encouraging central banks across sub-Saharan Africa to take a cautious approach to monetary policy.
“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.
“We see both the CBN and the Bank of Ghana (BoG) on hold at 26.5 percent and 14.0 percent, respectively. We previously saw 200 basis points of additional easing in Ghana this year.
“We see the SARB raising its policy rate by 25 basis points to 7.25 percent,” Khan said.
Ayodeji Ebo, chief executive officer of MDU Capital, said the decline in inflation was encouraging but argued that the conditions were not yet sufficient for the CBN to lower 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.
Abayomi Fashina, group risk manager at STL Capital, took a different position, pointing to falling inflation and declining market rates as reasons to consider easing.
“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 Monetary Policy Rate (MPR) is currently around 11.1 percentage points higher than August’s headline inflation rate. This shows how restrictive monetary policy remains relative to the current inflation level, although the possibility of renewed energy-price pressures remains a concern.
Faruq Quadri, an economist at SPEC-Matrix, said rising energy costs could feed into transportation and other domestic expenses and potentially reverse some of the recent progress on 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 the approaching election cycle as another factor that could affect the inflation outlook.
“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.
Adebowale Funmi, head of research at Parthian Securities, described the decline in inflation to 15.39 percent as encouraging but said it had not yet created a strong enough basis for a rate cut.
“This is because the pace of disinflation is flattening and the renewed Middle East crisis presents upside risks through higher crude oil, energy and transportation costs.
“Therefore, we expect the CBN to remain in a wait-and-see mode, leaving the MPR unchanged at 26.5 percent. The MPC will want to see a sustained disinflationary trend, alongside continued exchange-rate stability, before initiating an easing cycle,” Funmi said.
A financial consultant who requested anonymity also expects the MPC to maintain its current position, citing the impact of higher energy prices and expected pre-election spending on inflation.
Analysts at Quest Merchant Bank said the easing inflationary pressures and improving macroeconomic conditions had increased the possibility of the MPC eventually beginning a policy-easing cycle.
However, they noted that the committee could remain cautious because the inflation outlook remains fragile and recent gains need to be sustained.
“External risks also remain elevated, as heightened geopolitical tensions in the Middle East have pushed global oil prices above $100 per barrel, raising the risk of renewed inflationary pressures,” the analysts said.
United Capital Research expects the MPC to keep the policy rate unchanged while continuing to monitor inflation and wider economic developments. The research firm also expects the CBN to continue managing liquidity through Open Market Operations and other market-based tools.
“We expect the MPC to maintain the Monetary Policy Rate (MPR) at 26.5 percent; retain the Standing Facilities Corridor around the MPR at +50/-450 basis points; maintain the Cash Reserve Requirement (CRR) for Deposit Money Banks at 45.0 percent; retain the CRR for Merchant Banks at 16.0 percent; maintain the Liquidity Ratio at 30.0 percent; and retain the CRR on Non-Treasury Single Account (TSA) public sector deposits at 75 percent,” the analysts at United Capital said.
Coronation Merchant Bank analysts said the August inflation figures showed that Nigeria’s disinflation process remained on track, supported by lower food and core inflation.
“However, we expect the MPC to maintain a cautious stance and hold the MPR at its September 21–22 meeting, following the recent rebound in global crude oil prices, with Brent crude now trading above $100 per barrel,” they said.
They warned that a prolonged increase in oil prices could raise domestic fuel and transportation costs, potentially slowing the pace of disinflation in the months ahead.
At its July 2026 meeting, the CBN retained the MPR at 26.5 percent. It also maintained the Standing Facilities Corridor at +50/-450 basis points and kept the CRR for Deposit Money Banks at 45 percent, Merchant Banks at 16 percent and non-TSA public sector deposits at 75 percent.
CBN Governor Olayemi Cardoso said the decision followed an assessment of the risks facing the economy.
“Although the headline inflation moderated marginally in June 2026, global uncertainties have heightened due mainly to the renewed hostilities in the Middle East. In view of the evolving developments, maintaining a cautious monetary policy stance remains appropriate,” Cardoso said.
