Nigeria's benchmark interest rate is likely to remain above 22 percent until 2026 as the central bank prioritizes inflation control and currency stability over growth acceleration, according to economists and analysts surveyed by BusinessDay.
The Central Bank of Nigeria has kept monetary policy tight following a series of aggressive hikes aimed at curbing inflation and restoring confidence in the naira. While recent data suggest a tentative macroeconomic recovery, policymakers have shown less inclination toward rapid easing rather than a measured stance that would preserve Nigeria's yield advantage.
“The CBN is unlikely to pursue aggressive rate cuts; a measured approach should keep the monetary policy rate above 22% into 2026,” analysts at data and research consultancy firm SBM Intelligence said in a recent outlook.
Samuel Oyekanmi, head of research and insights at research and advisory firm Norenberger, said the CBN will remain “cautious” in its policy-making next year, citing the need to balance inflation stability, exchange rate stability and maintain a premium for portfolio investors, who accounted for 80 percent of foreign investments in the country in the first quarter of the year.
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“They will have to cut at some point. But then we don't expect a cut that high from 27%. We expect the authorities to cut rates by 400 to 500 basis points,” Oyekanmi said.
currency stability vs growth
At stake is whether the Abuja-based lender can resist political pressure to cut rates to stimulate expected growth of 7 percent over the next two years, especially as the next election cycle approaches, while maintaining the yield premium that attracts foreign portfolio flows critical to currency stability.
Higher interest rates have helped draw offshore investors back into Nigerian assets after years of capital flight, with FPI now estimated to exceed $20 billion by year-end, providing support for the Naira and easing pressure on foreign exchange reserves which now stand at their highest level since 2019 at $45 billion. Analysts warn that a rapid turnaround could reverse those gains.
“It is worth noting that the currency's recent stability has been built primarily on tight monetary conditions that have kept foreign portfolio flows busy and suppressed import demand that would otherwise pressure the FX market,” Arnold A. Dublin-Green, CEO/Managing Director of RC Asset Management Ltd., wrote in a guest article.
“Cut rates too aggressively, and you destroy the yield premium that attracts those flows; cut too sharply, and you reopen the import channel with predictable consequences for the naira.”
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Caution exercised over expected election expenditure
The CBN's Monetary Policy Committee (MPC) kept key interest rates unchanged throughout 2024 and cut them by just 50 basis points from 27.5 per cent in September after inflation continued its downward trend, marking the first rate cut under the Olayemi Cardoso-led MPC.
The decision to keep rates steady at 27 per cent at its last policy meeting in November, while adjusting the asymmetric corridor to +50/-450 basis points, highlights its reluctance to declare victory on inflation, even as prices are now falling to 14.45 per cent for the eighth consecutive month.
Dublin-Green said the move reflects a central bank that remains wary of Nigeria's political economy despite a lack of inflationary pressures.
“It speaks to a central bank that sees progress, but doesn't yet trust it,” he wrote. “The key variable is the upcoming election cycle. Political spending has a predictable tendency to loosen fiscal discipline, thereby increasing liquidity in a system that is still sensitive to shocks.”
Election-related fiscal expansion has historically complicated Nigeria's monetary policy, often forcing the central bank to offset government spending with tighter fiscal conditions.
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Growth accelerated despite strict monetary policy
Nigeria experienced a strong growth rate this year despite the CBN’s tight policy regime, according to Ayo Teriba, Chief Executive Officer of Economics Associates, who thinks “the current MPR is out of touch with market realities.
“With a tight monetary regime, growth accelerates as it does not impact the market unless the MPR impacts the rediscount rate.”
Africa's most populous country saw its fastest economic growth in five years in the second quarter of 2025, at 4.23 percent, before falling to 3.98 percent in the three months ending September.
Analysts expect the growth momentum to continue in the coming year on the back of government spending including pre-election spending, improving oil sector performance, a strong services sector, a revival in domestic consumption and fixed investments.
