By Bassey Udo
The Central Bank of Nigeria (CBN) on Tuesday reaffirmed its commitment to steering the economy towards achieving its target single-digit inflation rate, even as it pursues policies to grapple with fresh headwinds as a result of renewed hostilities in the Middle East that have unsettled global energy markets.
The CBN Governor, Olayemi Cardoso, gave the assurance while briefing journalists at the end of the 306th meeting of the Monetary Policy Committee (MPC) in Abuja.
During the meeting, Cardoso said members of the Committee reviewed recent developments in the domestic and global economy and weighed the risks posed to Nigeria’s overall policy outlook.
MPC holds rates steady
The CBN governor said the Committee resolved to retain all key monetary policy parameters, allowing Monetary Policy Rate (MPR), popularly called the official lending rate for commercial banks, to remain unchanged at 26.5 percent, while the asymmetric corridor around the MPR stays at +50/-450 basis points.
The Cash Reserve Requirement (CRR) was also held steady at 45 percent for Deposit Money Banks, 16 percent for Merchant Banks, and 75 percent for non-TSA public sector deposits.
Cardoso explained that the decision to hold rather than adjust policy followed a careful weighing of risks, arguing that although headline inflation eased slightly in June 2026, the Committee noted that global uncertainty had intensified, driven chiefly by the resurgence of conflict in the Middle East.
Given this volatile backdrop, he said members agreed that a cautious, wait-and-watch policy stance was the most prudent path forward, to allow the apex Bank some headroom to monitor incoming data before making further moves.
Cautious optimism on Inflation trend
In the communique he read during the briefing, Cardoso noted that headline inflation (year-on-year) moderated marginally to 15.91 percent in June 2026, down from 15.93 percent in May — bringing to an end three consecutive months of rising prices.
The drop, he pointed out, was driven by softer non-food prices, even as food inflation climbed to 17.52 percent from 16.96 percent, reflecting persistent supply constraints.
He said core inflation, however, moderated significantly to 15.92 percent from 16.82 percent, a development the Committee attributed largely to sustained stability in the foreign exchange market.
Also, he observed that the 12-month average inflation rate continued its downward trajectory, easing to 17.63 percent in June from 18.36 percent in May — the sixth straight month of moderation.
Besides, month-on-month headline inflation, he noted, slowed to 1.66 percent from 1.75 percent, aided by a slowdown in core price pressures.
Speaking directly to concerns that inflation appears to be plateauing in the 15–16 percent range, Cardoso acknowledged the frustration but urged perspective.
He recalled that Nigeria has now recorded eleven months of disinflation, adding that before the latest external shocks, the CBM had projected the economy would be firmly on track for single-digit inflation by early 2027.
Describing the Middle East crisis as an unanticipated shock whose duration remains uncertain, the CBN governor insisted this was “not something we can wish away” — rather, something the Bank must simply continue to manage.
He pointed to the marginal moderation in headline inflation as evidence that the CBN’s monetary policy tools were working and impacting the economy, while stressing that closer coordination between fiscal and monetary authorities would help cushion the economy against the rigidities created by the external shocks.
The CBN governor reiterated that the apex bank remained committed to bringing inflation down to single digits and “will do what we need to do” to contain rising prices.
Growth and external buffers hold
On output, the communique showed that real Gross Domestic Product (GDP) grew by 3.89 percent in the first quarter of 2026, slightly down from 4.07 percent in the preceding quarter.
The CBN governor said growth was anchored mainly by the non-oil sector, which expanded by 3.94 percent on the back of gains in telecommunications, financial services, trade, and transportation.
He said the oil sector, however, slowed sharply to 2.57 percent from 6.79 percent in the fourth quarter of 2025, due to maintenance work on oil facilities and installations.
More recent indicators, he noted, offered some encouragement, as the composite Purchasing Managers Index (PMI) rose to 50.1 index points in June, up from 49.6 in May, signalling expanding economic activity.
Also, gross external reserves strengthened, rising to $52.52 billion as of July 17, 2026, from $50.47 billion at the end of May — boosted by crude oil-related tax receipts and third-party inflows.
The CBN governor noted that this level of reserves was sufficient to cover about 11 months of import needs, well above the three-month international benchmark.
CBN responds to IMF report on Naira valuation
Asked about a recent International Monetary Fund (IMF) assessment suggesting the Naira was undervalued by about 25.6 percent, with a suggested fair value near ₦1,142 to the dollar, Cardoso maintained that the Bank’s focus remained on sustaining a transparent, liquid, willing-buyer-willing-seller foreign exchange market, rather than targeting a specific rate.
He described the Naira’s value as “a moving target” ultimately determined by fundamentals — oil exports, foreign direct investment, and domestic productivity aimed at reducing import dependence.
The CBN governor expressed confidence in the current market structure, noting that daily turnover often exceeds $1 billion, arguing that Nigeria needs a competitive currency to support the aforementioned fundamentals, suggesting current exchange rate levels are broadly aligned with that objective.
Banking sector recapitalisation “hugely commendable”
The MPC welcomed the outcome of the ongoing banking sector recapitalisation exercise, noting significant improvements in resilience as reflected in prudential and financial soundness indicators.
Cardoso disclosed that out of 37 banks assessed, 33 successfully met the new capital thresholds without an extension of deadlines — a feat he called commendable, particularly since most of the capital raised came from domestic sources.
On the banks yet to meet requirements, the CBN governor said some had faced regulatory intervention at earlier points that set back their timelines, but stressed that all such institutions remained under close CBN guidance and were working through alternative pathways to ultimate compliance.
He assured the public that these banks remain safe to do business with.
Regarding a separate report showing that deposit money banks extended ₦5.45 trillion less credit to eight major sectors in 2025 — a 14.8 percent decline in total lending — Cardoso attributed this to banks recalibrating their loan portfolios following the CBN’s discontinuation of COVID-era regulatory forbearance.
He described the pullback in lending as temporary, insisting it reflects a shift toward a more sustainable, higher-quality credit environment rather than a lasting contraction, and expects lending to normalise as banks strengthen their capital buffers.
On the fate of the more than 800 microfinance banks still in operation after 46 others were deregistered over compliance failures, Cardoso said the industry has undergone a “shake-up” that has heightened awareness of regulatory thresholds, with the CBN’s overriding priority being the protection of depositors’ funds.
Global backdrop and outlook
The communique noted that global growth is projected to slow to 3.0 percent in 2026, from 3.5 percent in 2025, weighed down by geopolitical tensions, trade policy uncertainty, and tight fiscal conditions worldwide.
It noted that inflation risks globally remained tilted to the upside, driven by rising crude oil and commodity prices, supply chain disruptions, and climate-related shocks to food production.
Despite these pressures, the MPC expects Nigeria’s output growth to stay resilient in 2026, supported by improving crude oil production, an expansionary PMI, and the lagged benefits of earlier policy reforms.
Inflation is projected to ease further in the medium term, aided by continued exchange rate stability, the delayed effects of previous monetary tightening, and improved food supply as the harvest season approaches.
The Committee identified a severe or prolonged escalation of the Middle East conflict as the principal risk to this outlook, and reaffirmed its readiness to take further policy action as macroeconomic conditions evolve.
