For the second straight quarter, the Central Bank of Nigeria (CBN) has chosen caution over action. Meeting for the 306th time this week, the Monetary Policy Committee (MPC) of the CBN voted to keep its benchmark interest rate frozen at 26.5%, resisting any temptation to loosen policy even as the country’s inflation numbers finally started bending in the right direction.
According to the eleven members who gathered in Abuja on July 20 and 21, the decision was about restraint, looking at the available data, global uncertainty and the Middle East convulsed by conflict.
The Numbers Are Improving Slowly
There is genuine good news buried in the CBN’s latest Communique. Headline inflation eased to 15.91% in June, down from 15.93% in May, snapping consecutive months of rising prices.
The 12-month average inflation rate has now fallen for six straight months, landing at 17.63%, a trend the bank is clearly proud of, even if the pace of improvement remains modest.
Core inflation, the number that strips out volatile food and energy prices, dropped sharply, from 16.82% to 15.92%, largely on the strength of a steadier naira. But food inflation moved the other way, climbing to 17.52% from 16.96% as supply constraints continue to squeeze household budgets.
For ordinary Nigerians, that divergence matters more than any single headline figure: the cost of keeping the lights on may be stabilising, but the cost of keeping the fridge stocked is not.
The broader economy is growing fast as expected. Real GDP expanded 3.89% in the first quarter of 2025, a step down from 4.07 in the previous quarter. The slowdown was concentrated in oil, where output growth collapsed from 6.79% to 2.57% amid facility maintenance work.
Non-oil sectors- telecoms, financial service, trade, transport, picked up much of the slack, expanding 3.94%. And business activity itself appears to be gathering steam: the Purchasing Managers Index (PMI) climbed to 50.1 points in June, from 50-point.
What Influenced The Decision?
Despite the fact that inflation is cooperating, the Committee decided to hold the rates steady because of uncertainty. Renewed hostilities in the Middle East have unsettled global energy markets, and the MPC is watching closely for any pass-through into Nigeria’s own price levels.
The Committee’s language suggests officials see the domestic economy as resilient so far, a resilience they credit to reforms already put in place by fiscal and monetary authorities, but not so resilient that they are willing to declare victory.
Global growth itself is expected to slow to 3.0% in 2026, down from 3.5% the year before, weighed down by geopolitical tensions, trade policy uncertainty, and tight fiscal conditions worldwide.
Inflation risks globally remain tilted upward, driven by rising crude and commodity prices, with supply chains and climate shocks adding further pressure, a combination the Committee clearly does not want to be caught flat-footed (unprepared) against.
In effect, the MPC is buying itself time: holding the policy rate steady, alongside the Standard Facilities Corridor at +50/-450 basis points around the MPR, and leaving the Cash Reserve Requirement (CRR) unchanged – 45.00% for Deposit Money Banks, 16.00% for Merchant Banks and a hefty 75.00% for non-TSA public sector deposits, while it watches how the Middle situation unfolds.
Reserves Growth And Banks Stress Test
If there is a quiet source of confidence behind the apex bank’s steady-as-she-goes approach, it is the state of the nation’s foreign reserves. Gross external reserves climbed to $52.52 billion as of July 17, 2026, up from $50.47 billion at the end of May, a jump the CBN attributed to mainly crude oil-related tax receipts and third-party inflows.
CBN said the reserves are large enough to cover roughly 11 months of imports, well past the three-month cushion regarded as the international benchmark for financial stability. It is the kind of buffer that gives a central bank room to be patient rather than reactive.
The committee also used the meeting to note a milestone of sorts: the completion of the banking sector’s recapitalisation exercise. Members pointed to improvements in prudential and financial soundness indicators as evidence the industry is emerging stronger, though the tone was one of cautious approval rather than celebration, the bank was careful to urge continued surveillance to guard against fresh risks to financial stability.
More Fiscal And Monetary Coordination Required
Beyond the numbers, the communique reads as much as a message to the fiscal side of government as it does a technical policy statement.
The Committee welcomed what it described as the Federal Government’s renewed push for closer coordination between fiscal and monetary policy, saying that the collaboration helped cushion the domestic economy from the worst of the Middle East shock.
It also flagged Executive Order 9 as a tool with potential to strengthen macroeconomic fundamentals further and praised government efforts to lift crude oil production while nudging authorities to unlock non-oil revenue, especially solid minerals, as a complement to oil earnings.
Looking Forward
On the outlook, the Committee said growth is expected to hold up, buoyed by improving oil output, and expansionary PMI, and the delayed payoff from earlier reforms. Inflation, officials believe, should keep easing as the exchange rate stays stable, past rate hikes continue to work through the economy, and the harvest season brings relief to food prices.
But Governor Olayemi Cardoso and his colleagues were unambiguous about where the real danger lies: a severe or prolonged escalation of the Middle East conflict remains, in their own words, the key risk to that outlook.
Until that risk clarifies one way or another, the message from Abuja is simple, the CBN would rather stay still than move and be wrong.
