Moderating Inflation Makes Case For Monetary Easing

As Nigeria’s inflation rate extends its downward trajectory, analysts have strengthened the case for monetary easing ahead of this week’s Monetary Policy Committee meeting of the Central Bank of Nigeria, arguing that price stability and improving macro fundamentals now offer room for a cautious rate cut.

According to analysts, the MPC, as it sits today and tomorrow, will not be focused on whether to cut, but on how much to cut, with some postulating a cut of 50-100 basis points.

Fresh data from the National Bureau of Statistics showed that headline inflation slowed to 15.1 per cent year on year in January 2026, from 15.2 per cent in December, marking the 11th consecutive month of moderation. The outcome came in significantly below most analysts’ projections.

At its last meeting in November 2025, the MPC held the benchmark rate at 27 per cent, but the vote split underscored a committee edging towards policy normalisation, with five members backing a rate cut against six who preferred to maintain the status quo.

Senior Market Analyst at FXTM, Lukman Otunuga, described the latest inflation print as a turning point.

“In a welcome development for Nigeria’s economy, inflation unexpectedly slowed in January, with prices rising 15.1 per cent year on year,” he said, noting that the figure was “well below the 19.5 per cent median estimate.”

He attributed the moderation largely to easing food prices, adding that “lower food prices have helped offset inflationary pressures, paving the way for the CBN to cut rates in February after leaving benchmark rates at 27 per cent in November.”

Otunuga further pointed to currency stability as a supportive factor. “The argument for lower rates has also been reinforced by Naira’s eight appreciation against the dollar year to date. The question is not if but how much the CBN will slash interest rates.”

Analysts at Afrinvest West Africa also leaned towards a policy shift, highlighting the breadth of price moderation across key components and anticipating a 50-100bps easing at the MPC meeting.

According to the analysts, this view is anchored on consecutive moderation in inflation, alongside sustained accretion to external buffers, continued Naira appreciation, and stable energy goods prices, which provide the CBN with latitude for policy flexibility.

“Growing expectations of rate cuts across major advanced economies in H1:2026 further improve the external backdrop for easing. Furthermore, the November 2025 MPC split (5 to 6 vote) indicates a committee increasingly receptive to policy normalisation.

“The CBN appears to have sufficient latitude to deliver up to a 100bps rate cut. Market pricing dynamics further reinforce this view.

Recent activity in the NT-Bills market points to yield moderation, particularly at the long end of the curve, where yields have compressed by nearly 150bps to around 20.5 per cent, reflecting expectations of a softer rate environment. That said, downside risks to a near-term rate cut remain.” Afrinvest analysts noted.

For analysts at Meristem, the anticipation is that disinflation trends, exchange rate stability, and upcoming political developments will be important factors in the MPC’s decision-making process. These conditions strengthen the case for a dovish stance by the committee.

“We believe we are at an inflexion point. The combination of sustained disinflation and currency stability suggests the MPC is gaining confidence that the worst of the inflation cycle is behind us.

While near-term risks have not disappeared, we expect the MPC to lean dovish, while keeping a leash on liquidity and remaining cautious of potential risks to the accumulated gains on macroeconomic variables.

“We expect the Committee to cut the MPR by 100bps to 26 per cent, adjust the Asymmetric Corridor from +50bps/-450bps to +200/-300bps around the MPR, retain Liquidity Ratio at 30 per cent maintain the CRR at 45 per cent for Deposit Money Banks, 16 per cent for Merchant Banks, and 75 per cent for non-TSA public sector deposits.”