…For now, caution appears to be the prevailing bias—but the door to easing is gradually opening if inflation continues to cool and external buffers remain strong
By Charles Ike-Okoh
SAT FEB 21 2026-theGBJournal| The Monetary Policy Committee (MPC) of the Central Bank of Nigeria is scheduled to hold its first meeting of the year on 23–24 February, and the big question dominating financial circles is whether the Monetary Policy Committee (MPC) of the Central Bank of Nigeria will finally pivot toward monetary easing.
After an extended cycle of aggressive tightening aimed at taming inflation and stabilising the naira, markets are searching for signals that policymakers may be ready to cut interest rates.
The answer, however, is far from straightforward and hinges on inflation dynamics, currency stability, liquidity conditions, and broader fiscal coordination.
Since the previous meeting, risks to global economic stability have increased amid heightened geopolitical tensions and policy uncertainties.
Nonetheless, the recent weakening of the US dollar has provided some relief to emerging and frontier markets by easing external financing pressures and improving capital flow dynamics.
Domestically, inflation remains the central variable. Although recent data suggest price pressures may be moderating, headline inflation is still elevated relative to the CBN’s long-term comfort zone.
Food inflation, energy costs, and exchange rate pass-through effects continue to weigh heavily on consumer prices.
For the MPC, cutting rates prematurely risks reversing hard-won gains in anchoring inflation expectations. Policymakers will likely want clearer, sustained evidence of disinflation before loosening policy—particularly several consecutive months of declining core and headline figures.
Currency stability is another decisive factor. The naira’s performance in recent months has been closely linked to foreign portfolio flows attracted by high yields in fixed income markets.
Elevated interest rates have made Nigerian treasury bills and bonds more attractive to offshore investors seeking carry returns.
A rate cut could narrow yield differentials and potentially trigger capital outflows, placing renewed pressure on the currency. Given the CBN’s focus on exchange rate stability and rebuilding foreign reserves, it may be cautious about taking any action that could undermine external confidence.
Despite elevated global uncertainties, the combination of a softer dollar and attractive naira yields has sustained foreign investor interest, reinforcing the currency’s appreciation and reducing near term inflation risks.
That said, there are growing arguments in favour of easing. Nigeria’s real sector continues to grapple with high borrowing costs, which have constrained credit expansion and dampened private sector investment.
Manufacturers, SMEs, and consumer borrowers are facing elevated financing expenses, limiting economic momentum. A modest, well-signalled rate cut could reduce debt servicing burdens and stimulate lending activity without necessarily igniting inflation—particularly if supported by improved supply-side conditions and stable FX liquidity.
Financial markets are already pricing in expectations.
Bond yields have shown sensitivity to speculation around policy direction, and equity investors are watching closely. Lower rates typically support equities by reducing discount rates and improving corporate financing conditions.
On the other hand, fixed income investors could see capital gains if yields fall, but also lower reinvestment returns over time. The MPC must weigh these trade-offs carefully, balancing growth support against financial stability risks.
Global conditions also matter. Major central banks, including the Federal Reserve, have begun signalling a more dovish stance after their own tightening cycles. If global rates trend downward, the CBN may have more room to ease without triggering destabilising capital flows. However, if global uncertainty or oil price volatility resurfaces, policymakers may opt to maintain a defensive posture.
Ultimately, the decision may not be binary. The MPC could choose to hold rates steady while adjusting liquidity tools such as the cash reserve ratio or open market operations to fine-tune conditions. Alternatively, it may deliver a symbolic, marginal cut to signal a policy shift while maintaining a tight real rate stance.
Communication will be crucial; markets respond as much to forward guidance as to the rate decision itself.
In conclusion, whether the CBN MPC lowers interest rates will depend on a delicate balance of inflation control, currency management, growth considerations, and global monetary trends.
While pressure to support economic recovery is mounting, policymakers are unlikely to act unless convinced that macroeconomic stability is firmly entrenched. For now, caution appears to be the prevailing bias—but the door to easing is gradually opening if inflation continues to cool and external buffers remain strong.
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