Nigeria’s monetary landscape shifted on Tuesday as the Central Bank of Nigeria lowered its benchmark interest rate for the first time after nearly a year of sustained tightening.
The move follows eleven consecutive months of declining inflation, record-high foreign reserves, and signs of sustained economic expansion. For businesses, investors, and households, The key question now is clear: Is this the beginning of a broader easing cycle — or a cautious one-off adjustment?
11 Months of Disinflation
Headline inflation eased to 15.10 percent in January 2026, down from 15.15 percent in December 2025. While the year-on-year decline appears modest, the month-on-month data revealed a sharper shift: inflation fell to -2.88 percent, compared with 0.54 percent in the preceding month.
Food inflation dropped significantly to 8.89 percent from 10.84 percent, supported by improved food supply conditions and exchange rate stability. Core inflation also declined to 17.72 percent from 18.63 percent, largely driven by moderation in Information & Communication services pricing.
The MPC described the disinflation trend as the product of prior contractionary policies, improved balance of payments, stable petroleum product prices, and enhanced food supply.
After months of rate hikes aimed at containing price pressures, the data now suggest that tightening has achieved its primary objective.
$50.45 Billion in Reserves
One of the most striking figures in the communiqué was Nigeria’s gross external reserves. As of February 16, 2026, reserves rose to $50.45 billion, the highest level in thirteen years. That translates to an import cover of 9.68 months for goods and services— a substantial cushion against external shocks.
The MPC attributed the reserve accretion to:
- Higher export earnings
- Increased remittance inflows
- Improved capital inflows
- Strengthened balance of payments
The Committee also welcomed the issuance of Presidential Executive Order 09, which redirects oil and gas revenues into the Federation Account, potentially improving fiscal revenue and reserve accumulation. For market watchers, this reserve strength significantly reduces short-term foreign exchange vulnerability.
Economic Activity Still Expanding
Even as inflation cools, output remains resilient. Nigeria’s Purchasing Managers’ Index (PMI) stood at 55.7 points in January 2026, signalling continued expansion in economic activity. A PMI reading above 50 indicates growth. This combination — falling inflation, rising reserves, and expanding output — provides the macroeconomic space for a moderate policy easing without undermining stability.
Banking Sector
The MPC also reviewed the health of the financial system. Of the 33 banks that have raised additional capital under the recapitalisation programme, 20 have already met the new minimum capital requirement.
Key financial soundness indicators remain within regulatory thresholds, according to the Committee. The recapitalisation exercise, the MPC emphasized, is central to building a more resilient financial system capable of supporting long-term growth. For investors in Nigerian banking stocks, this signals structural strengthening beneath the rate adjustment headline.
Liquidity Controls Remain Tight
While the MPR was reduced, the CBN retained critical liquidity controls:
- Standing Facilities Corridor at +50/-450 basis points
- CRR at 45 percent for Deposit Money Banks
- CRR at 16 percent for Merchant Banks
- 75 percent CRR for non-TSA public sector deposits
This suggests the central bank is easing cautiously, not abandoning discipline. Credit conditions may improve gradually, but system-wide liquidity remains constrained.
The Risk Factor: Election Spending
The MPC flagged a major risk to the inflation outlook: increased fiscal releases, including election-related spending. Historically, election cycles in Nigeria have introduced liquidity pressures that can reignite inflation. If fiscal expansion accelerates aggressively, the CBN may be forced to reconsider its easing stance later in the year.
Global Context
Globally, economic activity is projected to strengthen in 2026, supported by easing monetary conditions and rising investment in artificial intelligence technologies.
However, risks remain:
- Rising protectionism
- Geo-economic fragmentation
- Potential trade disputes
For Nigeria, these global shifts affect commodity prices, capital flows, and foreign exchange stability.
What This Means for You
For Businesses
Lower benchmark rates could gradually reduce borrowing costs, supporting expansion and working capital financing.
For Investors
Bond yields may soften over time if disinflation persists. Banking stocks could benefit from recapitalisation progress and improved credit conditions.
For Consumers
The direct impact may be slower, but sustained disinflation could support real purchasing power recovery.
Is This the Start of a New Cycle?
The February 2026 decision signals a policy transition — from aggressive tightening to controlled normalization.
- Inflation is falling.
- Reserves are rising.
- Growth remains expansionary.
- Banks are strengthening their capital base.
But risks — particularly fiscal pressures — remain.
The next MPC meeting, scheduled for May 19–20, 2026 will provide clearer signals on whether Nigeria is entering a sustained easing cycle or merely adjusting tactically. For now, the message from the Central Bank of Nigeria is measured but confident: the inflation shock is receding — and monetary policy is responding.
