Economic analysts have described the recent 50 basis points interest rate reduction by Nigeria’s monetary authorities as a strategic and credibility-driven adjustment.
Prof. Uche Uwaleke, President of the Capital Market Academics of Nigeria (CMAN), characterized the decision by the Central Bank of Nigeria as measured and consistent with efforts to preserve macroeconomic stability.
Speaking in Abuja following the 304th Monetary Policy Committee (MPC) meeting, Uwaleke said the rate reduction from 27 percent to 26.50 percent reflects a transition from aggressive tightening toward calibrated easing.
Inflation Moderation Supports Policy Shift
According to Uwaleke, headline inflation has declined for eleven consecutive months, reaching 15.10 percent. Food inflation has dropped significantly, and month-on-month inflation has turned negative — strong indicators that previous tightening measures are yielding results.
Nigeria’s external reserves have climbed to a 13-year high, while exchange rate stability has improved alongside rising capital inflows. He emphasized that much of the current disinflation reflects lagged effects of earlier monetary tightening.
Avoiding Premature Easing
Uwaleke cautioned that accelerating easing too rapidly could reverse hard-earned gains, particularly given Nigeria’s historically fragile inflation expectations.
He said the 50 basis points adjustment achieves three critical objectives: supporting economic expansion as indicated by a Purchasing Managers’ Index (PMI) reading of 55.7 points, safeguarding exchange rate stability, and anchoring inflation expectations.
The MPC communiqué also flagged potential election-related fiscal spending as an upside inflation risk. Should fiscal policy become expansionary, monetary tightening may need to persist longer.
Banking Recapitalisation Context
The rate decision also aligns with Nigeria’s ongoing banking recapitalisation exercise. Uwaleke referenced disclosures indicating that 20 banks have already met new capital requirements.
Maintaining stability during structural financial sector adjustments, he noted, is critical to sustaining investor confidence.
Looking ahead, Uwaleke suggested that further gradual rate cuts may occur if inflation continues moderating over the next two to three months and external conditions remain stable. However, he ruled out a return to aggressive easing unless inflation declines sharply or economic growth weakens significantly.
