Analysts Support MPC’s Decision to Cut Rates by 50 Basis Points

Analysts have backed the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to cut the rate by 50 basis points.

The stakeholders affirmed that the rate cut to 26.5 per cent is mostly viewed as a credibility-building signal rather than the start of rapid easing.

Economic Confidential reports that at the end of the first meeting in 2026, the MPC reduced the monetary policy rate by 50 basis points to 26.5 per cent. It retained the Standing Facilities Corridor around the MPR at plus or minus 450 basis points and retained the Cash Reserve Requirement for Deposit Money Banks at 45.00 per cent, Merchant Banks at 16.00 per cent, and 75.00 per cent for non-TSA public sector deposits.

According to the MPC decision document, the rate cut followed sustained disinflation, improved external buffers, and banking sector resilience, with reserves reaching a 13-year high and inflation slowing to 15.1 per cent. The committee stressed that the adjustment reflects policy normalisation within a still-restrictive stance rather than a full easing cycle.

Economic analysts, such as those at Coronation Merchant Bank, say the modest rate cut reflects the MPC’s desire to protect hard-won inflation gains while signalling responsiveness to improving macroeconomic conditions.

The President of the Capital Market Academics of Nigeria, Professor Uche Uwaleke, said the decision demonstrates a deliberate and strategic transition.

“To start with, I consider the 50 basis point cut a cautious move by the MPC. Granted, inflation has been falling for eleven consecutive months, headline inflation is down to 15.10 per cent, food inflation has dropped sharply, and month-on-month inflation even turned negative. That is a very strong signal that prior tightening is working. So, the natural question is why not cut more aggressively, but the answer lies in risk management and the recognition that monetary policy operates with significant lags,” he said.

He added that aggressive easing could undermine the credibility the Central Bank has built through its tightening cycle: “Much of the disinflation we are seeing now is the delayed effect of earlier tightening.

If the Central Bank eases too quickly, it could reverse those gains and destabilise expectations. Inflation expectations in Nigeria are historically fragile, so the authorities want to consolidate credibility before accelerating easing. In that context, the 50 basis point adjustment should be seen as a signalling move rather than a policy pivot toward aggressive rate cuts.”

Uwaleke highlighted recent FX interventions as evidence of inflow strength and the need for policy caution, saying, “The Central Bank recently mopped up about $190m to slow naira appreciation, which is unusual because interventions typically defend a weakening currency. This reveals strong inflows from oil earnings, remittances, and portfolio investors, as well as a deliberate attempt to avoid destabilising the fixed-income market. If the naira appreciates too quickly, foreign investors who entered for yield advantages may exit. A sharp rate cut could trigger carry-trade unwinds and renewed dollar demand.”

He further stressed that exchange-rate stability remains central to monetary strategy: “The 50 basis point cut balances growth support, exchange rate stability, and inflation expectations anchoring. It reflects a pragmatic understanding that macroeconomic stability remains the priority. Gradual easing provides policy flexibility in case external conditions shift. Therefore, the decision reinforces the credibility of a cautious policy transition.”

He also highlighted fiscal risks tied to political spending cycles, given 2026 is a pre-election year. “There is a political economy dimension because potential election-related fiscal spending represents an upside risk to inflation,” Uwaleke said. “If fiscal policy becomes expansionary, monetary policy may need to remain tighter for longer. A gradual easing cycle gives the central bank flexibility to respond to evolving fiscal dynamics. This underscores why the MPC is proceeding cautiously rather than aggressively.”

The analysts at Coronation Merchant Bank, in their macroeconomic update on the rate cut, said, “The 50 bps rate reduction signals a cautious shift toward policy normalisation within a still-restrictive monetary stance, rather than a full switch into a monetary easing cycle. Real interest rates remain elevated at about 11.0 per cent, underscoring the Committee’s priority of consolidating the current disinflation momentum, preserving exchange rate stability, and sustaining foreign portfolio inflows. The policy path is likely to remain evidence-based, with further recalibration contingent on a sustained moderation in inflationary pressures and exchange rate stability.

“The MPC also signalled its confidence in the current state of affairs by announcing its next meeting for three months’ time rather than the every-two-months rotation we have been used to in recent times.”

For the experts at Analysts Data Services and Resources, there has been a rate cut, but the monetary policy stance still remains tight. They note that the “Monetary Policy has moved between periods of Tight and Loose stances in the last two decades. With inflation currently at 15.10 per cent, an MPR of 26.50 per cent indicates a tight monetary policy stance for Nigeria. As things improve, more cuts should be expected cautiously, though.

“The recent drop in inflation partly reflects the CPI rebasing, which lowered measured inflation by updating the consumption basket and weights, but underlying disinflation also reflects tighter monetary conditions and easing of earlier shocks such as exchange-rate adjustments and energy price reforms.”