CBN MPC holds key rate as central bank thinks inflation rise is transitory

Monetary Policy Committee (MPC) of the Central Bank of Nigeria has retained the country’s benchmark interest rate at 26.5 per cent, maintaining a cautious stance as it weighs renewed inflation pressures linked to global energy market disruptions and lingering domestic price concerns.

CBN Governor Olayemi Cardoso announced the decision on Wednesday while briefing journalists after the conclusion of the committee’s two-day meeting in Abuja.

The decision followed the 305th MPC meeting held on May 19 and 20, with all 11 members in attendance.

The committee also retained the asymmetric corridor around the Monetary Policy Rate at +50/-450 basis points and left the Cash Reserve Ratio unchanged at 45 per cent for Deposit Money Banks, 16 per cent for Merchant Banks and 75 percent for non-TSA public sector deposits.

The latest decision extends the CBN’s careful policy approach after two consecutive rate cuts since September 2025, when it delivered its first reduction in five years by lowering the benchmark rate from 27.5 per cent to 27 per cent.

The MPC subsequently held rates steady in November 2025 before cutting again in February 2026 to 26.5 per cent, showing a gradual move away from the aggressive monetary tightening cycle that followed Nigeria’s inflation and foreign exchange crisis.

Wednesday’s decision comes as inflationary pressures show signs of persistence despite broader macroeconomic reforms introduced under the Cardoso-led central bank.

Nigeria’s inflation rate rose marginally for a second consecutive month to 15.69 per cent, according to the latest official data, although the MPC said it believes the uptick is temporary and largely driven by external shocks.

The committee specifically pointed to spillovers from tensions in the Middle East, which it said have increased energy prices, transportation costs and logistics expenses globally.

However, the MPC argued that the impact on Nigeria has remained relatively contained because of earlier economic reforms, including efforts to stabilise the exchange rate, strengthen external reserves, improve monetary policy transmission and reinforce fiscal discipline.

The committee also cited the country’s strengthened banking sector and improved reserve buffers as factors helping the economy absorb external pressures.

“As a result, the pass-through of global commodity and energy price shocks to domestic inflation has been significantly mitigated and would have been more pronounced in the absence of these reforms,” Mr Cardoso said.

The committee added that the conditions necessary for price stability remain in place despite current global uncertainties. The MPC also welcomed Nigeria’s recent sovereign rating upgrade, saying the development reflects improving confidence in the country’s macroeconomic reforms and direction despite difficult global conditions.

The MPC said maintaining a cautious and vigilant policy stance remains necessary to anchor inflation expectations and preserve macroeconomic stability.

The committee also noted the successful completion of the banking recapitalisation exercise, which it said resulted in 33 banks emerging with stronger financial soundness indicators and improved capacity to support economic growth.

It nevertheless urged banks to remain proactive and adopt necessary measures to address potential post-recapitalisation risks to preserve financial system stabilityNigeria’s central bank kept its key lending rate unchanged on Wednesday, with Governor Olayemi Cardoso saying ‌a cautious and vigilant stance was needed to anchor inflation expectations and safeguard economic stability.

Headline inflation had edged up for the second month running in April to 15.69% year-on-year, as the U.S.-Israeli war against Iran pushed up domestic fuel prices, which fed through into food costs.

Cardoso told a press conference that, although inflation had risen marginally, the bank’s Monetary Policy Committee felt the rise had a “transitory nature”.

The bank remained “confident that the current macroeconomic environment is sufficiently robust to support a return to disinflation,” he added.

Robert Omotunde, ‌director and chief investment officer at MDU Capital Limited, said Wednesday’s decision showed the central bank was focused on maintaining policy credibility and keeping positive real interest rates

“For fixed income markets, the (rate) pause may support continued investor confidence in naira assets, particularly amid improving foreign portfolio inflows into government securities,” Omotunde added

S&P gave an upbeat assessment of Nigeria’s economy last week when it upgraded the country’s long term sovereign credit rating.

It expects Nigeria’s real gross domestic product per capita to grow by an average of 1.4% annually through 2029, an improvement on an average yearly contraction of 1% over the past decade.

Cardoso said the government’s reforms meant the overall impact of the Iran war on the domestic economy had been muted so far

The Debt Management Office (DMO) had conducted its May 2026 FGN bond auction on 18 May 2026, offering a total of N600bn (vs. N700bn at the previous auction) through the re-opening of the 22.60% FGN FEB 2035 and the 16.25% FGN APR 2037 instruments.

Investor participation weakened, with total subscriptions settling at N796.17bn (including N280bn non-competitive bids), lower than N948 subscription at the previous auction. This translates to a bid-to-offer ratio of 1.33x amid increasingly cautious market sentiment.

The DMO allotted N614.51bn, implying a bid-to-cover ratio of 1.23x. The instruments cleared at marginal rates of 17.00% (vs. 16.59% at the prior auction) and 17.04%, respectively.