MPC Stays The Course As Reforms Strengthen Economy

At its 306th meeting last week, the Monetary Policy Committee of the Central Bank of Nigeria (CBN), in line with many expectations, maintained the status quo, leaving all monetary policy parameters unchanged despite a moderation in inflation and an improving economy.

The decision to keep rates unchanged signalled that, despite improving domestic macroeconomic indicators and moderating inflation, heightened geopolitical tensions in the Middle East have become the biggest threat to Nigeria’s disinflation journey.

While recent reforms have continued to deliver improvements in inflation, foreign exchange stability, external reserves, and investor confidence, policymakers remain wary of external shocks that could reverse these gains.

CBN governor, Olayemi Cardoso, speaking at the end of the meeting, acknowledged that the apex bank’s inflation fight had made notable progress before renewed geopolitical tensions complicated the outlook.

According to him, Nigeria had recorded 11 months of disinflation and was firmly on course to achieve single-digit inflation by early 2027, before fresh external shocks emerged.

Looking back at the country’s recent inflation trend, Cardoso said that after 11 months of disinflation, “We were expecting that by early 2027 we would be where we want to be in terms of inflation and firmly on track for single digits.”

He, however, noted that the renewed hostilities in the Middle East have proved more prolonged than initially anticipated, creating fresh inflationary risks across the world. “Unfortunately, these were shocks that came that were not anticipated in that manner, and have gone on a lot longer than could have been anticipated. Really and truly, at this stage in the game, who knows how long that is going to be? It is not something we can wish away. It’s just something that we need to deal with.”

Despite external uncertainties, the latest inflation figures offered some encouragement to policymakers. Headline inflation eased marginally to 15.91 per cent in June 2026 from 15.93 per cent recorded in May, ending three consecutive months of increases.

Although food inflation rose to 17.52 per cent from 16.96 per cent owing to supply disruptions in major food-producing areas and higher transportation costs, the moderation in core inflation to 15.92 per cent from 16.82 per cent helped contain overall price pressures. The 12-month average inflation also declined for the sixth consecutive month to 17.63 per cent from 18.36 per cent, while month-on-month headline inflation slowed to 1.66 per cent from 1.75 per cent.

For the MPC, these developments suggest that the aggressive monetary tightening implemented over the past two years is gradually producing the desired results. Cardoso said the moderation in inflation, although slight, indicates that the policy tools deployed by the apex bank are beginning to yield positive outcomes.

“We are pleased on two counts. One is the fact that inflation has moderated. Albeit slightly, it has moderated. Headline inflation has moderated, so that gives us an indication that the tools we have implemented so far are bearing fruit.”

The governor, however, admitted that inflation remains vulnerable to structural rigidities beyond the control of monetary policy alone. According to him, stronger collaboration between fiscal and monetary authorities has become increasingly important in addressing supply-side constraints and sustaining the disinflation process.

He stressed that the CBN would continue to work closely with the Federal Government to ensure inflation gradually returns to the single-digit target. “We are alive to our responsibilities, and we will do what we need to do to ensure that we can contain rising inflation in every manner and bring it to the single-digit level that we have spoken about earlier.”

One of the strongest messages from the July MPC meeting was the resilience of the Nigerian economy despite heightened global uncertainty. The Committee observed that previous fiscal and monetary reforms have helped shield the economy from severe external shocks associated with rising crude oil prices and disruptions in global supply chains.

The MPC also welcomed renewed coordination between the Federal Government and the CBN, noting that improved policy alignment has moderated the domestic impact of the Middle East crisis.

Members further expressed optimism that Executive Order 9, increased crude oil production and ongoing reforms in the solid minerals sector would strengthen government revenues and improve macroeconomic stability.

The Committee also applauded the progress made under the banking sector recapitalisation programme, noting improvements in prudential indicators and the resilience of the financial system while urging the CBN to sustain effective supervision.

Another indicator reinforcing the Bank’s confidence is the continued growth in Nigeria’s external reserves. Gross external reserves climbed to $52.52 billion as of July 17, 2026, from $50.47 billion at the end of May, supported largely by higher crude oil-related tax receipts and third-party inflows.

The reserves are now sufficient to finance approximately 11 months of imports, significantly above the international benchmark of three months. For Cardoso, the growth in reserves reflects the gradual return of stability to the economy following difficult policy reforms.

He argued that macroeconomic stability remains the foundation upon which sustainable investment and long-term economic growth can be built. “Without that stability, you don’t get investment, and without that investment, you don’t get the growth that you need. So, it has been so important to ensure that we worked hard to get that stability in place, and that is forming the platform for greater growth in our economy.”

He added that the steady improvement in reserves demonstrates that the reforms are beginning to produce measurable outcomes. “Reserves have been up, as I said. The stability is there, and the resilience is gradually paying off.”

Beyond inflation, the MPC also reviewed developments in economic output. Nigeria’s real Gross Domestic Product expanded by 3.89 per cent in the first quarter of 2026, compared with 4.07 per cent in the previous quarter.

Growth was largely supported by the non-oil sector, particularly telecommunications, financial services, trade, transportation and other services.

Although oil sector growth slowed to 2.57 per cent from 6.79 per cent due to maintenance activities at oil facilities, the Committee pointed to improving business confidence, with the Composite Purchasing Managers’ Index rising above the 50-point expansion threshold to 50.1 in June.

The MPC expects output growth to remain resilient through the rest of the year, supported by higher crude oil production, improving business activities and the positive effects of ongoing reforms.