As we envisaged, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) reduced the Monetary Policy Rate (MPR) by 50bps to 26.50% (previous: 27.0%), citing sustained disinflation, naira appreciation, and an improved external position. However, the Committee retained the Standing Facility Corridor at +50bps/-450bps, while leaving the Cash Reserve Requirement unchanged at 45.0% for Deposit Money Banks, 16.0% for Merchant Banks, and 75.0% for non-TSA public sector deposits. The liquidity ratio was also maintained at 30.0%.
On Domestic Growth: The Committee noted that the economy continues to expand, underpinned by resilient private sector activity, as evidenced by the CBN’s Purchasing Managers’ Index (PMI). Although the Composite PMI moderated to 55.70 points in January (December: 57.60 points), it remains well above the 50-point expansion threshold, signalling sustained growth momentum and a favourable outlook for output in Q4-25 and Q1-26.
On Inflation: The MPC highlighted sustained moderation in inflation pressures, as evidenced by the continued deceleration in headline inflation (January 2026: 16.05% y/y vs December 2025: 15.15% y/y). This has been underpinned by the lagged effect of monetary policy tightening, naira appreciation, improved agricultural output, and steady fuel prices.
On the External Sector: The Committee underscored the sustained improvement in Nigeria’s external position, evidenced by a balance of payments surplus and rising external reserves, which have collectively reinforced exchange rate stability. It also welcomed the Federal Government’s Executive Order mandating the direct remittance of oil revenue to the Federation Account, a measure expected to strengthen fiscal revenues and further support reserve accretion. According to the CBN, gross external reserves stood at USD50.45 billion as of 16 February – the highest level in 13 years – providing import cover of approximately 9.7 months.
On Global Developments: The Committee noted that global growth is projected to strengthen over the near to medium term, supported by progress in trade negotiations, increased investment in AI-related technologies, and the gradual easing of monetary policy across major economies. However, it cautioned that significant headwinds persist and could weigh on the outlook. These include rising protectionism, deepening geo-economic fragmentation, and the potential escalation of trade disputes, all of which pose downside risks to global growth. On inflation, the Committee expects the global disinflation process to extend into 2026, driven by the lagged effects of prior monetary tightening and ongoing improvements in supply chain conditions. Nonetheless, inflation is likely to remain above historical norms in the near term, reflecting structural rigidities and uneven disinflation dynamics across economies.
Cordros’ View
As we projected, the MPC voted to lower the MPR by 50bps to 26.50% at its February meeting, citing a positive inflation outlook, exchange rate stability, and a more supportive external backdrop. On the other hand, other policy parameters were left unchanged, including the Standing Facility Corridor at +50bps/-450bps, the CRR at 45.0% for Deposit Money Banks, 16.0% for Merchant Banks, and 75.0% for non-TSA public sector deposits, as well as the liquidity ratio at 30.0%.
While the MPC opted to lower the MPR, the overall tone of the meeting remained cautious, reflecting concerns about potential excess liquidity arising from increased fiscal spending ahead of elections in 2027. The Committee highlighted that such liquidity injections could heighten upside risks to exchange rate stability and inflation through renewed demand pressures and possible FX market strains. Nonetheless, we maintain that the disinflation process is likely to gather pace in the first half of the year, supported by favourable base effects and sustained naira appreciation. This is likely to create additional scope for faster policy easing in the near term, as disinflation widens the positive real policy rate. Accordingly, barring any material shocks, we anticipate a further 100bps reduction in the MPR at the May meeting.
Market Impact
Fixed Income: We believe the 50bps reduction in the MPR is unlikely to trigger a material decline in yields. To put it in proper context, market sentiment had already turned bullish ahead of the decision, as evidenced by strong oversubscription at recent auctions, with institutional investors positioning early to lock in elevated yields in anticipation of a more decisive rate cut. As such, we expect a measured reaction in the secondary market following the MPC outcome.
In the near term, we believe fixed income yields will remain anchored by sizable government borrowing, liquidity conditions, and the inflation trajectory. Specifically, while recent increases in liquidity conditions and sustained disinflation are likely to drive yields lower in the near term, the increased pace of government borrowing and a cautious pace of monetary easing are likely to slow the pace of decline.
Equities: Nigerian equities have sustained a broad based rally in 2026, advancing by 25.0% YTD as of 24 February. The rally has been supported by improving macroeconomic conditions, sustained foreign portfolio inflows, stronger domestic participation, solid corporate earnings outcomes, and positive corporate developments. Policy tailwinds, most notably PenCom’s upward revision of equity allocation limits, alongside growing expectations of monetary easing, have further reinforced sentiment. In this context, the MPC’s decision to cut rates by 50bps was largely in line with expectations and appears substantially priced in, nonetheless, we do not rule out a measured near term reaction.
Looking ahead, market direction is likely to be driven more by underlying macroeconomic trends and corporate catalysts, including the release of 2025FY audited results and accompanying dividend declarations, Q1-26 earnings updates, corporate actions, and the sustainability of both foreign and domestic investor flows.
