As expected, the Central Bank of Nigeria (CBN)-led Monetary Policy Committee (MPC) maintained the Monetary Policy Rate (MPR) at 26.50 per cent per annum at its May 2026 meeting. The decision reflects a more cautious policy stance following the 50 basis points rate cut in February, which was quickly followed by the outbreak of the U.S.–Iran conflict and a sharp global energy price shock. Nigeria’s headline inflation also edged higher to 15.69 per cent, reinforcing the CBN’s preference for caution. The MPC’s decisions reflects strong drive to put inflation on check, improve stability and raise confidence of global investors in the domestic economy.
Since the U.S.–Iran conflict began, Brent crude has averaged approximately $100pb for 11 consecutive weeks, while global inflation expectations have risen to 4.4 per cent from 3.8 per cent.
Inflationary pressures are expected to remain potent due to higher energy costs, election spending, and lingering supply-side constraints.
However, a stable exchange rate and monetary tightening are expected to keep price pressures tapered.
Hence, at MPC’s 305th policy meeting, all rates and parameters were kept unchanged.
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The asymmetric corridor was also retained around the MPR at +50 basis points and -450 basis points, Cash Reserve Requirement (CRR) for commercial banks at 45.0 per cent, CRR for merchant banks at 16.0 per cent, CRR on non-Treasury Single Account (TSA) public sector deposits at 75.0 per cent and Liquidity Ratio unchanged at 30.0 per cent.
The CBN Governor, Olayemi Cardoso stated that the decision reflected the emerging resilience and stability in the overall economy, noting that the nation’s external reserves had recovered to $49.49 billion as at May 15, 2026 from initial shocks from the US-Israel-Iran conflict while the foreign exchange (forex) market has stabilised with enough self-running liquidity to the extent that the apex bank has no need for any heavy intervention in the forex market.
At $49.49 billion, the external reserves cover 9.04 months of imports.The apex bank also said efforts were ongoing to further improve credit for Small and Medium Enterprises (SMEs). New credit extended to SMEs rose from about N153 billion in March 2026 to about N199 billion in April 2026. Retail lending accounted for about 94.73 per cent of the new credit facilities issued during the period, while general commerce accounted for about 2.46 per cent.
Addressing reporters in Abuja, Cardoso said 11 members of the MPC voted to maintain all benchmarks to allow past tightening measures to work through the economy.
According to him, the committee’s decisions were anchored on a comprehensive assessment of risks to the outlook.
‘Although inflation has risen marginally for two consecutive months, largely induced by external shocks, the MPC recognised its transitory nature and remains confident that the current macroeconomic environment is sufficiently robust to support a return to disinflation,’ Cardoso said.
He said that while the MPC noted geopolitical friction in the Middle East, which has driven up global energy prices and shipping logistics, the committee reasoned that the impact on Nigeria has been minimal because of previous structural changes.
Cardoso listed exchange rate stability, higher foreign reserves, better policy transmission, a solid banking system, and ongoing government spending discipline as the key factors shielding the local economy from global price shocks.
He noted that the domestic impact of global commodity fluctuations would have been far more severe without these existing reforms, adding that the essential conditions for price stability remain firmly in place.
He said the MPC was delighted by Nigeria’s recent sovereign credit rating upgrade, noting that positive assessment from global rating agencies during a period of worldwide economic tension shows the strength of the country’s economic foundation and builds trust in the government’s policy direction.
Cardoso explained that the committee believes a cautious and watchful policy stance is necessary to steady inflation expectations and protect economic stability.
He also expressed satisfaction with the conclusion of the banking sector recapitalisation programme, which ended with 33 banks meeting the new higher capital benchmarks.
While these stronger institutions now have more room to grant credit to the real sector, the committee directed bank regulators to monitor post-recapitalisation risks closely to protect the financial network.
Cardoso said the structure of Nigeria’s foreign exchange market has changed significantly under the ongoing reforms introduced by the apex bank, adding that increased market liquidity has reduced the need for heavy intervention by the CBN.
According to him, daily foreign exchange market turnover has risen sharply from about $100 million when the current administration took office to roughly $550 million presently, with transactions occasionally climbing to as high as $1 billion in a single day.
He said the apex bank expects turnover to consistently hit the $1 billion mark in the future as more reforms take effect.
‘The foreign exchange system has changed considerably. Where you already have a deepening foreign exchange market where liquidity rules the day, there’s very little need for you to intervene. The market operates largely on its own,’ Cardoso said.
He explained that CBN intervention currently accounts for only about 1.2 to 1.3 per cent of total foreign exchange market turnover in 2025, a development that reflects the growing strength of the market.
He added that the forex market is now increasingly driven by willing buyer-willing seller dynamics, while transparency and equal access to information have helped restore confidence among investors and market participants.
Cardoso also dismissed concerns over fluctuations in Nigeria’s foreign reserves, saying movements in the reserves are normal because the country continues to meet government obligations and external loan repayments.
What stakeholders are saying
Managing Director, Financial Derivatives Company Limited, Bismark Rewane, said that despite persistent global uncertainty, Nigeria’s macroeconomic fundamentals have improved modestly.
‘External reserves remain close to $49bn, oil production has strengthened to approximately 1.49mbpd, and the recent S and P sovereign rating upgrade reflects improving investor confidence. The naira is expected to remain relatively stable within the ?1,390/$–?1,420/$ range in the parallel market, while Brent crude is projected to trade between $98pb and $105pb through Q2 2026,’ he said.
Chief Executive Officer, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the apex bank’s decision reflected a balanced and intelligent policy calibration.
According to him, the apex bank’s decision appropriately recognises that the ultimate objective of macroeconomic management is not merely to tame inflation statistics, but to create an environment that supports investment, productivity, competitiveness, industrialisation and sustainable job creation.
Yusuf said the apex bank showed a pragmatic, measured and increasingly sophisticated understanding of the inflation dynamics currently confronting the Nigerian economy.
‘Monetary policy is a powerful stabilisation instrument, but it cannot repair supply chains, resolve geopolitical conflicts or eliminate structural bottlenecks in production and distribution. Attempting to force down structural inflation solely through aggressive monetary tightening would amount to applying a monetary solution to a structural problem.
‘The decision to hold rates therefore demonstrates a commendable recognition that excessive tightening at this stage could suffocate productivity, weaken industrial recovery, constrain investment appetite and undermine employment generation. Economies do not grow on the strength of high interest rates; they grow on the strength of productivity, enterprise, investment confidence and policy coherence,’ Yusuf said.
Pre-election spending tests economy’s resilience
Members of the Central Bank of Nigeria (CBN)-led Monetary Policy Committee have said that rising political spending and forex demand pressures associated with the 2027 elections will test the resilience of the domestic economy.
In their personal notes at the February meeting – the MPC members- Aloysius Ordu, Bandele Amoo, Lamido Yuguda, Muhammad Sani Abdullahi and Philip Ikeazor reiterated the stability and resilience of the post-recapitalisation banking sector.
Ordu said stronger naira is already positioning Nigerian capital market as Africa’s top performer. He said the ongoing banking sector recapitalisation has progressed considerably, with over 70 per cent of fresh capital sourced domestically.
‘High debt service cost continues to constrain fiscal policy, complicating policy coordination. However, fiscal consolidation measures, including planned return to a single budget cycle and the introduction of Executive Order 9, 2026, are expected to strengthen transparency and improve fiscal health,’ he said.
‘Revenue performance shows incremental improvement, with distributable federation revenue rising to N1.969 trillion in January 2026 from N1.928 trillion in December 2025. Nonetheless, government revenues continue to fall short of target, widening fiscal gaps and increasing borrowing needs,’ he added.
Amoo said the banking system remains stable and resilient, with recapitalisation efforts bolstering financial soundness indicators.
‘However, credit transmission to productive sectors remains weak, with concentration in oil and gas and commerce crowding out agriculture and SMEs. The external sector shows resilience, supported by remittance inflows and impressive reserve accretion. Gross external reserves rose significantly to US$50.45bn as of February 16, 2026, the highest in 13 years. This provides an import cover of 9.68 months for goods and services. The naira has maintained relative stability, with positive prospects of further appreciation,’ he said.
‘My primary concern is the persistence of excess liquidity from fiscal injections, which could undermine disinflation gains and exchange rate stability. The 75 per cent Cash Reserve Ratio on non-TSA deposits has helped sterilise public sector induced liquidity, but fiscal spending pressures linked to the 2026 budget cycle, and early political activities ahead of the 2027 elections may heighten risks,’ he added.
Continuing, he said Nigeria’s macroeconomic fundamentals continue to improve, with reforms restoring investor confidence, moderating inflation, and improving external buffers.
‘The durability of these gains depends on deepening structural reforms, diversifying exports, and strengthening institutional credibility,’ he said.
Yuguda said the success of the just concluded bank recapitalization programme may also introduce additional liquidity.
‘How banks channel their enhanced capital into real-sector lending will influence growth, inflation, and financial stability dynamics. Furthermore, potential increases in fiscal spending associated with the electoral cycle could generate demand pressures and disrupt the disinflation trajectory,’ he said.
For Abdullahi, exchange rate pressures remain moderated and relative stability established signaling improved foreign exchange market liquidity and reduced speculative activity supported by the increase in gross external reserves to US$50.45 billion as of 16th February 2026 from US$42.77 billion at endDecember 2025. This will support the current account as it can support over 9 months of import for goods and services.
Ikeazor said CBN’s shift toward a more balanced monetary stance has helped maintain alignment between key macroeconomic stability indicators and the policy trajectory, supporting economic activity, moderating inflationary pressures, and anchoring expectations.
‘Nonetheless, signs of a potential loss of economic momentum are emerging, reflected in softening demand, subdued credit to the core private sector, rising fiscal pressures from elevated recurrent spending and increased domestic borrowing,’ he said.
‘Domestically, the economy has also demonstrated resilience, even though growth in Q3 2025 was weaker compared to Q2 2025. This slowdown reflects soft aggregate demand and sluggish oil GDP performance, partly driven by a 2.38 per cent decline in crude oil production between the two quarters,’ Ikeazor stated.
Nonetheless, non oil GDP continued to sustain momentum, supported by improvements in trade and real estate. Overall, moderating global inflation and rising crude oil prices are expected to support the domestic economy. However, the benefits of these favourable external conditions may be partially offset by declining domestic oil production. The net outcome will depend on the balance between global tailwinds and domestic constraints.