Nigeria’s monetary policy stance entered a new phase on Tuesday as the Central Bank Of Nigeria (CBN) reduced its benchmark interest rate for the first time in nearly a year, marking a tentative pivot away from aggressive tightening.

At the conclusion of its 304th meeting held on February 23-24, 2026, the Monetary Policy Committee (MPC) voted to cut the Monetary Policy Rate (MPR) by 50 basis points to 26.5 percent, according to the official communiqué. The decision follows eleven consecutive months of declining inflation, record high external reserves, and sustained signs of economic expansion.

For businesses, investors, and households, the central question is whether this move represents the start of a broader easing cycle or a carefully calibrated, one off adjustment.

Inflation Trends Confirm Policy Impact

Headline inflation eased to 15.10 percent in January 2026, down marginally from 15.15 percent in December 2025. While the year on year decline appears modest, the monthly inflation data revealed a more pronounced shift: month on month inflation fell to 2.88 percent, compared with 0.54 percent in the previous month.

Food inflation declined sharply to 8.89 percent from 10.84 percent, reflecting improved food supply conditions, relative exchange rate stability, and easing logistics pressures. Core inflation also moderated, falling to 17.72 percent from 18.63 percent, driven largely by reduced pricing pressures in Information and Communication services.

According to the MPC, the disinflationary trend reflects the cumulative impact of earlier contractionary policies, improved balance of payments dynamics, stable petroleum product prices, and enhanced domestic food supply. After months of aggressive rate hikes aimed at anchoring inflation expectations, the data suggest that monetary tightening has largely achieved its primary objective.

External Reserves Reach 13-Year High

One of the most significant highlights in the communiqué was Nigeria’s external reserve position. As of February 16, 2026, gross external reserves stood at $50.45 billion, the highest level in thirteen years. This provides an import cover of 9.68 months for goods and services, offering a strong buffer against external shocks.

The MPC attributed the reserve buildup to improved foreign exchange inflows, stronger oil export receipts, disciplined FX demand management, and improved confidence in the external sector.

The Committee also welcomed the issuance of Presidential Executive Order 09, which mandates the redirection of oil and gas revenues into the Federation Account. The policy is expected to enhance fiscal transparency, strengthen public revenues, and support further reserve accumulation. For market participants, the robust reserve position significantly reduces short term foreign exchange risks.

Growth Momentum Remains Intact

Despite the easing inflation environment, economic activity remains resilient. Nigeria’s Purchasing Managers’ Index (PMI) stood at 55.7 points in January 2026, indicating continued expansion in private sector activity. A PMI reading above 50 signals growth.

This combination of falling inflation, rising external buffers, and expanding output provides the macroeconomic space for cautious monetary easing without undermining price or financial stability.

Banking System Shows Structural Strength

The MPC also assessed the health of the financial system, noting solid progress in the ongoing bank recapitalisation programme. Of the 33 banks participating, 20 have already met the new minimum capital requirements.

Key financial soundness indicators remain within regulatory thresholds, according to the Committee. The MPC reiterated that recapitalisation is critical to strengthening the banking system’s capacity to absorb shocks and support long term economic growth. For investors in Nigerian banking equities, the progress signals improved balance sheet resilience beneath the headline rate adjustment.

Liquidity Controls Remain Tight

While the policy rate was reduced, the CBN maintained key liquidity management parameters, signaling a cautious approach rather than a wholesale policy reversal. This indicates that while credit conditions may ease gradually, system wide liquidity will remain tightly managed.

The MPC’s stance suggests that monetary discipline remains intact, even as the policy framework transitions toward normalization.

Fiscal Risks Still Loom

The Committee flagged fiscal expansion as a major risk to the inflation outlook, particularly increased government spending linked to the upcoming election cycle. Historically, election related fiscal releases in Nigeria have injected excess liquidity into the system, often reigniting inflationary pressures.

Should fiscal expansion accelerate aggressively, the CBN may be compelled to pause or reverse further easing later in the year.

Global Context and Market Implications

Globally, economic activity is projected to strengthen in 2026, supported by easing monetary conditions and rising investment in artificial intelligence driven productivity. However, global risks remain, including geopolitical tensions, commodity price volatility, and shifting capital flows.

For Nigeria, these external dynamics influence export earnings, foreign investment, and exchange rate stability.

Lower benchmark rates could gradually reduce borrowing costs for businesses, supporting expansion and working capital financing. Bond yields may soften further if disinflation persists, while banking stocks could benefit from recapitalisation progress and improving credit conditions. For households, the transmission effect may be slower, but sustained disinflation could support a gradual recovery in real purchasing power.

A Measured Policy Transition

The February 2026 decision signals a shift from aggressive tightening toward controlled normalization. However, the MPC’s communication makes clear that easing will be data dependent and cautious.

The next MPC meeting, scheduled for May 19-20, 2026, will offer clearer guidance on whether Nigeria is entering a sustained easing cycle or merely executing a tactical adjustment.

For now, the message from the Central Bank of Nigeria is measured but confident: inflationary pressures are receding, macroeconomic buffers are strengthening, and monetary policy is responding carefully.