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CBN retains benchmark interest rate at 26.5% amid external shocks, rising inflation, drawing mixed reactions from private sector
The Monetary Policy Committee of the Central Bank of Nigeria decided on Wednesday to keep the benchmark interest rate unchanged at 26.5 per cent, citing growing external risks, renewed inflationary pressures, and the need to sustain exchange rate stability.
CBN Governor Olayemi Cardoso announced the outcome at the end of the committee’s 305th meeting in Abuja.
“The committee’s decision is as follows: retain the monetary policy rate at 26.5 per cent,” he said.
The decision drew a divided response from the Organised Private Sector. Some members acknowledged the justification for holding rates steady, while others warned that high borrowing costs continue to stifle private sector investment, particularly in small businesses and manufacturing, leading to lower output and weaker job creation.
The committee also left other parameters unchanged: the standing facilities corridor around the MPR at +50/-450 basis points, the Cash Reserve Requirement for Deposit Money Banks at 45 per cent, for Merchant Banks at 16 per cent, and for non-TSA public sector deposits at 75 per cent.
The rate decision came after Nigeria’s headline inflation rose for the second consecutive month to 15.69 per cent in April 2026, up from 15.38 per cent in March, according to the latest Consumer Price Index report from the National Bureau of Statistics.
Food inflation climbed to 16.06 per cent in April from 14.31 per cent in March, driven by higher transport and logistics costs as well as seasonal pressures, while core inflation moderated slightly to 15.86 per cent from 16.21 per cent.
The MPC attributed the renewed inflationary pressure largely to external shocks, particularly spillovers from the Middle East crisis, which has pushed up global energy prices and logistics costs. However, the committee noted that the impact on Nigeria had been muted by earlier reforms, including exchange rate stability, improved external reserves, stronger monetary policy transmission, a better-capitalised banking system, and ongoing fiscal consolidation.
“Although inflation has risen marginally for two consecutive months, largely induced by external shocks, the MPC recognised its transitory nature and remained confident that the current macroeconomic environment is sufficiently robust to support a return to disinflation,” the committee said.
Speaking at the post-meeting press briefing, Cardoso said the CBN would maintain its current policy direction, pointing out that the country had recorded 11 straight months of disinflation before the recent uptick.
“We’ve got to remember that we’ve been coming from 11 straight months of disinflation. And we believe that what we have now is something that has resulted from external shocks,” he said.
He added that the central bank had built buffers to protect the economy, noting that Nigeria’s recent sovereign rating upgrade by Standard & Poor’s showed current policies were moving the economy in the right direction.
According to Cardoso, exchange rate stability remains central to the CBN’s inflation-control strategy. “It is key that the centrepiece of our toolkit is ensuring that our foreign exchange rate remains stable,” he said, adding that the bank would continue working with fiscal authorities to reduce inflation pass-through.
On the foreign exchange market, the governor dismissed claims that the CBN was aggressively intervening to defend the naira. “The answer is that it’s not true,” he said.
“The foreign exchange system has changed considerably.” Cardoso noted that daily foreign exchange turnover had risen from about $100 million when the current administration took office to roughly $550 million, with occasional spikes to $1 billion.
He said the CBN’s intervention in 2025 was only about 1.2 to 1.3 per cent of total market turnover, indicating that the market is increasingly driven by willing buyers and sellers.
The governor also said Nigeria’s external reserves remain dynamic and resilient despite recent concerns over declines.
The MPC communiqué showed gross external reserves stood at $49.49 billion as of May 15, 2026, compared with $48.35 billion at the end of March, providing 9.04 months of import cover.
Cardoso explained that some reserve movements reflected normal payments for government obligations and loans, but added that new inflows were also coming in.
Addressing the new foreign exchange manual, Cardoso said the document, which took effect on June 1, is part of ongoing reforms to deepen transparency and improve market confidence.
He noted that the last major revision was done in 2017, and the new manual would make it easier for exporters to repatriate foreign exchange earnings and access their funds without unnecessary restrictions.
Supporting the decision, Dr. Muda Yusuf, Director of the Centre for the Promotion of Private Enterprise, said the MPC acted in line with expectations by resisting further tightening.
“The MPC decision to retain the rate is in line with the CPPE’s expectation. We were trying to caution that we don’t want to see further tightening of monetary policy,” Yusuf said.
He observed that businesses are already grappling with harsh operating conditions and could not absorb additional increases in borrowing costs.
“The situation is bad enough for many businesses. We don’t want an additional hike in interest rates,” he added.
Yusuf explained that although inflation edged higher in March and April, month-on-month indicators for headline, core, and food inflation had declined, giving the apex bank room to hold rates steady rather than tighten further.
He added that prevailing geopolitical tensions involving Iran, Israel, and the United States, rising crude oil prices, and increasing election-related spending posed major inflationary threats that made a rate cut unrealistic at this stage.
“Those inflation risks are a lot. So you can’t expect the CBN to be relaxing when you are facing so much inflation risk. Our own position is that even despite that, they should not tighten monetary policy. And they didn’t tighten,” Yusuf said.
However, Dr. Femi Egbesola, President of the Association of Small Business Owners of Nigeria, faulted the decision and called for a rate reduction at the next MPC meeting.
“Many of us were very hopeful that the interest rate would come down. We believe that lowering the interest rate will go a long way to support more access to funding for SMEs and will also make it more affordable,” Egbesola said.
He argued that retaining the rate would worsen the challenges facing businesses and households already struggling with rising energy costs and inflation.
“I’m not too sure that this is going to be good for SMEs and the business community. I’m not too sure that it is also going to be good for the citizens because this will continue to mean that poverty will remain or become deeper,” Egbesola said.
He added, “Our prayer is for it to be lowered. We hope that in the next MPR session, something more reasonable will be done to lower it.”
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