Comments on February 2026 MPC Decisions
The MPC voted to reduce the benchmark policy rate or Monetary Policy Rate (MPR) by 50 basis points (i.e. 0.5%) from 27 per cent to 26.5 per cent; retained the existing Cash Reserve Ratio at 45.0 per cent for commercial banks and 16.0 per cent for merchant banks; the Liquidity Ratio at 30.0 per cent; and the Standing Facilities Corridor at +50/-450 basis points around the MPR.
The MPC decision was driven by relative stability and improvements in key drivers of inflation: the eleven-months (April, 2025 to January, 2026) consecutive decline in headline to 15.1 per cent in January 2026 from 27.6 per cent in April 2025; a similar decline in food inflation rate from 29.63 per cent in January 2025 to 8.89 per cent in January 2026; stable petroleum prices averaging N1,000/liter in 2025; the appreciation of the exchange rate of the naira by 9.03 per cent in the last one year, supported by a significant growth in external reserves from US$40.8 billion in January 2025 to US$50.45 per cent in February 2026; and a moderate 12.15% year-on-year expansion in monetary base, from N32.67trn in December 2024 to N36.64trn at the end of October 2025, with minimal inflation impacts.
In addition to the above key inflation drivers, other economic fundamentals such as the current account balance grew from US$1.43 billion in 2024 to US$16.94 billion in 2025, and is expected to grow to 18.81 billion in 2026. There was also enhanced stability of the banking and financial sector in 2025 from banks recapitalization and the 51.19 per cent year-to-date return of the Nigerian Stock Exchange All-Shares Index in 2025, compared to 37.65 per cent in 2024. Successive growth in real gross domestic product (GDP) from 3.13 per cent in quarter 1 2025 to 3.98 per cent year-on-year in quarter 3, 2025, with annual growth of 3.89 per cent in 2025, expected to grow by 4.49 per cent in 2026. Domestic and foreign investor confidence is also on the rise.
All the above positive fundamentals have been complemented by the other monetary and macroeconomic stability pillars and the moderation in the inflation drivers. It is obvious from this broad-based stability that inflation has been anchored, and only insecurity has continued to defy policy measures aimed at taming it. In addition, domestic production and consumption has been undermined by high costs of borrowing, as evidenced by the stringent calls for the reduction of the policy rate by Nigerian manufacturers and SMEs.
Against this backdrop, the MPC voted for a cautious policy reset based on gradual pivoting towards monetary policy easing. The cautious approach was dictated by the subsisting downside risks to the economy, which if not effectively managed, could crystalise and set off a round of rising inflation.
These risks include: geopolitical and international trade tensions which pose downside threat to Nigeria’s macroeconomic stability. At the domestic front, fiscal risks from rising debt service obligations, spending pressures associated with the 2027 election cycle, the rising wave of insecurity, overlapping budget implementation, and delays in the 2026 Appropriation Act which may engender extra-budgetary spending, pose major downside risks to Nigeria’s continued macroeconomic stability.
In all, the CBN is yet to be satisfied that the threat to price stability is convincingly under control, and its overarching desire to sustain the gains from ongoing declining inflation trend as well as in exchange rate stability.
Therefore, the marginal reduction in the policy rate reflects the CBN’s policy focus on achieving a single-digit inflation rate in 2026 before the commencement of major policy rate cuts. There is also the need to maintain the delicate balance between inflation control and output growth which has positive spillovers on employment and income. Similarly, there is the critical imperative of anchoring inflation expectations on the positive side by avoiding any inflation surprises.
In conclusion, the extant downside risks to Nigeria’s economic stability outlook dictate that going forward, caution should be exercised, and pivoting the policy rate should be dictated by the dynamics of the prevailing macroeconomic conditions at each point in time. The MPC decision is expected to further anchor and support inflation deceleration, with positive impacts on overall management of inflation in Nigeria.