Advertisement

UPDATE: Why CBN Retained MPR at 26.5%

Projects Further Decline in Inflation

The Central Bank of Nigeria (CBN) on Tuesday retained the Monetary Policy Rate (MPR), its benchmark interest rate, at 26.5 per cent for the second consecutive Monetary Policy Committee (MPC) meeting, following a rate cut in February.

The decision, the apex bank said, was driven by lingering global uncertainties despite signs of easing inflation and improving macroeconomic indicators.

The Governor of the CBN, Olayemi Cardoso, disclosed this while briefing journalists the at the end of the 306th meeting of the Monetary Policy Committee (MPC) on Tuesday, in Abuja.

The Committee also retained the asymmetric corridor around the MPR at +50/-450 basis points, the Cash Reserve Requirement (CRR) for Deposit Money Banks at 45 per cent, Merchant Banks at 16 per cent, and non-TSA public sector deposits at 75 per cent.

Cardoso said the MPC unanimously agreed to maintain the current monetary policy stance after assessing the balance of risks confronting the economy.

According to him, although headline inflation moderated slightly in June, renewed hostilities in the Middle East have heightened global uncertainties, particularly through rising energy prices, making a cautious policy approach necessary.

“The Committee noted that maintaining the current monetary policy stance will provide an opportunity to closely monitor incoming data and assess the trajectory of inflation to guide future policy decisions,” he said.

The MPC observed that Nigeria’s economy has remained largely resilient to external shocks, attributing the performance to reforms undertaken by both the fiscal and monetary authorities.

It also commended the Federal Government’s renewed commitment to stronger fiscal and monetary policy coordination, noting that such collaboration had helped cushion the domestic economy from the impact of the Middle East crisis.

On inflation, the Committee noted that headline inflation eased marginally to 15.91 per cent in June 2026 from 15.93 per cent in May, ending three consecutive months of increases.

Food inflation, however, rose to 17.52 per cent from 16.96 per cent, largely due to supply constraints, while core inflation slowed to 15.92 per cent from 16.82 per cent, supported by relative stability in the foreign exchange market.

The MPC also highlighted that the 12-month average inflation rate declined for the sixth consecutive month to 17.63 per cent in June from 18.36 per cent in May, indicating a gradual moderation in price pressures.

The Committee projected that inflation would continue to decline over the medium term, driven by sustained exchange rate stability, the delayed impact of previous monetary tightening, and improved food supply as the harvest season approaches.

On economic performance, the Committee noted that Nigeria’s Gross Domestic Product (GDP) expanded by 3.89 per cent in the first quarter of 2026, with the non-oil sector remaining the key growth driver.

It also pointed to improving business activities, as reflected in the Purchasing Managers’ Index (PMI), which rose to 50.1 points in June from 49.6 points in May, signalling a return to expansion.

The MPC further welcomed the increase in Nigeria’s gross external reserves to $52.52 billion as of July 17, 2026, up from $50.47 billion at the end of May. According to the Committee, the reserves are sufficient to finance about 11 months of imports, well above the international benchmark of three months.

The Committee also applauded the outcome of the banking sector recapitalisation exercise, describing the financial system as resilient, while urging the CBN to sustain effective supervision to preserve financial stability.

Looking ahead, the MPC warned that a prolonged escalation of the Middle East conflict remains the biggest threat to Nigeria’s inflation outlook due to its potential impact on global oil prices and supply chains.

The Committee reaffirmed its commitment to maintaining price and financial system stability and said it stands ready to adjust monetary policy if evolving macroeconomic conditions warrant further action.

The next meeting of the Monetary Policy Committee is scheduled for September 21 and 22, 2026.