Why High Interest Rates May Stay As CBN Bets On Reform Gains

As the Monetary Policy Committee of the Central Bank of Nigeria (CBN) gets set to convene for the meeting next week, the members of the monetary authorities have sent a strong signal that the battle against inflation is far from over, even as growing investor confidence in the economy continues to reinforce the gains recorded from the Central Bank of Nigeria’s reform agenda.

The personal statements of members of the MPC following its May 19 to 20, 2026 meeting reveal a committee increasingly convinced that recent improvements in macroeconomic indicators are beginning to restore confidence among both domestic and foreign investors. However, they also show a broad consensus that the current restrictive monetary policy must remain in place until inflation shows a more durable, sustained decline.

The MPC had at its last meeting unanimously voted to retain the Monetary Policy Rate (MPR) at 26.5 per cent alongside all other policy parameters, arguing that although inflation has risen marginally for two consecutive months, the increase was largely triggered by external shocks linked to the Middle East crisis rather than weaknesses in domestic policy.

Beyond the decision itself, however, the individual submissions by committee members paint a broader picture of an economy that is gradually regaining credibility after years of macroeconomic instability.

Several members pointed to improving foreign exchange stability, stronger external reserves, the successful completion of the banking recapitalisation programme, higher investor participation in financial markets and Nigeria’s sovereign credit rating upgrade as evidence that policy reforms are beginning to produce measurable results.

A member of the committee, Mustapha Akinkunmi noted that improved domestic liquidity conditions and stronger macroeconomic stability had boosted investor confidence, leading investors to accept lower yields while supporting a sustained expansion in stock market capitalisation.

According to him, despite heightened global financial uncertainty, the naira has remained relatively stable owing to improvements in foreign exchange market management and growing confidence in Nigeria’s economy.

He noted that external reserves had continued to rise from $30.26 billion recorded in January, reaching the highest level in over a decade and providing import cover of nearly 10 months.

Akinkunmi added that Nigeria’s transparent and market-oriented foreign exchange framework had also contributed to improved market confidence, with the naira appreciating modestly against the dollar during the review period.

A similar position was expressed by Aloysius Ordu, who argued that the completion of the banking sector recapitalisation exercise had strengthened the financial system’s capacity to support economic growth while attracting stronger investor participation across financial markets.

He noted that investor demand for government securities remained strong, supported by positive real returns, while Nigeria’s sovereign credit rating upgrade and impressive performance of the equities market reflected improving confidence in the country’s economic outlook.

According to Ordu, stronger external reserves and continued capital inflows have also helped stabilise the foreign exchange market despite growing global uncertainty.

Another member, Aku Odinkemelu, also described Nigeria’s external position as a major shock absorber, noting that reserves remained sufficient to cover about 9 months of imports, while continuing to support exchange rate stability and investor confidence.

She maintained that the successful banking recapitalisation programme, which raised over N4.65 trillion in fresh capital and produced 33 stronger banks, had significantly enhanced the resilience of the country’s financial system.

Other members also pointed to the recent sovereign rating upgrade as further validation of Nigeria’s reform efforts and an indication that international investors are beginning to take a more favourable view of the country’s economic prospects.

While the committee acknowledged these positive developments, members were unanimous that they do not yet justify any relaxation of monetary policy.

Instead, the statements reveal an emerging consensus that interest rates are likely to remain elevated until policymakers are convinced that inflation is on a sustained downward path.

For the committee, the recent rise in headline inflation from 15.38 per cent in March to 15.69 per cent in April does not represent a reversal of earlier gains. Rather, members believe the increase reflects temporary imported pressures arising from higher global energy prices and transportation costs triggered by geopolitical tensions in the Middle East.

They argue that lowering rates too early could undermine the credibility painstakingly built through months of aggressive monetary tightening.

Ordu stated that although there could eventually be room for a less restrictive policy stance if geopolitical tensions ease and energy prices moderate, the appropriate approach for now is to maintain current policy settings and gather more economic data before making any adjustments.

According to him, maintaining the present restrictive stance preserves the flexibility to respond quickly should inflation or growth conditions change materially before the next MPC meeting.

CBN Deputy Governor, Operations, Emem Usoro also cautioned against premature policy easing, warning that it could reverse recent gains in price stability and weaken confidence in the foreign exchange market.

She observed that while month-on-month inflation had moderated, structural drivers of inflation remained intact and global conditions offered little room for accommodation.

Usoro stressed that future adjustments should depend on sustained disinflation, exchange rate stability, and continued resilience in capital flows, rather than on temporary improvements in monthly inflation figures.

Also, Deputy Governor, Economic Policy, Muhammad Abdullahi, similarly argued that holding the policy rate while strengthening liquidity management represented the most balanced response to current economic conditions.

He maintained that such an approach preserves anti-inflation credibility while avoiding unnecessary pressure on economic recovery and allowing the Bank sufficient flexibility should inflationary risks intensify.

CBN Deputy Governor, Lamido Yuguda, also warned that although inflationary pressures currently appear transitory, prolonged geopolitical instability could make them more persistent.

He said easing monetary policy at this stage could send the wrong signal regarding the Central Bank’s commitment to price stability and risk unanchoring inflation expectations.

According to him, maintaining a restrictive stance represents prudent risk management in an environment characterised by significant uncertainty.

The message emerging from the Committee is that the Central Bank intends to preserve policy credibility by allowing previous tightening measures to work fully through the economy before considering any shift towards lower interest rates.

With geopolitical risks still threatening global energy markets and inflation remaining above the Bank’s long-term objective, analysts believe borrowers may have to prepare for an extended period of high interest rates.

For investors, however, the MPC’s message appears reassuring. The combination of policy consistency, stronger reserves, improving market confidence and a clear commitment to price stability suggests the Central Bank is prioritising macroeconomic stability over short-term stimulus.