May 18, 2026/Cordros Report
The Monetary Policy Committee (MPC) is scheduled to convene on May 19th and 20th for its second meeting of 2026. This is the first meeting since the start of the Middle East conflict on February 28, 2026, and we expect the committee to consider the spillover effects of this event in its deliberations. At this meeting, we anticipate a “HOLD” stance on policy rates, aligning with the Central Bank of Nigeria’s (CBN) commitment to maintaining price stability and supporting economic growth. Precisely, our projection is for the MPC to maintain the Monetary Policy Rate (MPR) at 26.50% and retain all other policy parameters at current levels. This anticipated stance reflects the interplay of the cautious posture of major global central banks, accelerating domestic inflation, which nevertheless remains within the CBN’s formal tolerance band (14.50%-18.50%), and stable exchange rate conditions.
GDP Growth Slows on Constrained Business Activities
In Q1-26, economic activity likely maintained a positive, albeit moderating, growth trajectory, weighed down by the spillover effects of the ongoing Middle East conflict and rising production costs. The Composite Purchasing Managers’ Index (PMI) averaged 55.1 points in Q1-26 (Q4-25: 56.5 points), indicative of continued expansion, albeit at a slower pace. However, the index’s contraction to 49.4 points in April 2026 signals a potential slowdown in real Gross Domestic Product (GDP) growth in the near term. The industry sector’s PMI has remained in contraction territory, registering 49.1 in Q1-26 and a marginal improvement to 49.5 in April 2026, with manufacturing weakness as the primary driver. This persistent sub-50-point reading represents downside risk to the country’s near-term growth outlook. Furthermore, crude oil production decreased by 0.2% q/q to 1.57 mb/d in Q1-26, indicating a likely slowdown in oil sector performance.
On balance, we estimate real GDP growth at 3.80% y/y in Q1-26 (Q4-25: 4.07% y/y) and forecast 4.20% y/y in Q2-26. Consequently, we expect the Committee to remain optimistic that domestic growth will continue, albeit slowly, in Q2-26. Hence, the Committee is likely to highlight the need to strengthen output growth and forestall the reversal of gains from the government’s stabilisation reforms.
Inflationary Levels Likely to Stay Sticky
While concerns about a slowdown in growth persist, the trajectory of domestic prices adds another layer of complexity to the Committee’s decision, particularly given that headline inflation reversed its disinflationary trend in March 2026. Headline inflation rose by 31bps to 15.69% y/y in April 2026 (March: 15.38% y/y), marking the second consecutive month of increases after 11 months of declines. The breakdown shows food inflation increased by 176bps to 16.06% in April (March 2026: 14.31%), while core inflation declined by 35bps to 15.86% (March 2026: 16.21%). On a month-on-month (m/m) basis, however, consumer prices eased to 2.13% m/m from the 4.18% spike in March 2026. The moderation in monthly price pressures was primarily driven by the absence of energy price spikes relative to March.
We expect the Committee to acknowledge the recent uptick in headline inflation over the last two months. While the y/y inflation trend warrants monitoring, though still within the CBN’s formal tolerance band of 14.50% – 18.50% for 2026, the m/m moderation underscores the absence of acute price pressures that would compel immediate policy tightening. As a result, we expect the Committee to preserve the flexibility to HOLD the MPR (at 26.5%).
The Stability of Naira Remains Intact
Beyond the inflation dynamic, the stability of the exchange rate will remain a critical input to the Committee’s deliberations, given the naira’s sensitivity to shifts in the interest rate differential. Since the last policy meeting, the naira has performed positively, with the official Nigerian Foreign Exchange Market (NFEM) rate stable around NGN1,368.20/USD as of May 14, 2026. The year-to-date performance is noteworthy, with c.4.52% appreciation against the USD, reflecting a combination of improved FX market liquidity and inflows, reduced FX demand pressure, improved market confidence, and CBN interventions.
However, the external reserve position is weaker than at the last MPC meeting. Nigeria’s gross foreign exchange (FX) reserves peaked at USD50.02 billion in March 2026 before declining to USD48.54 billion as of May 14, 2026. This combination of naira stability and lower reserves reinforces the case for policy caution, setting the stage for the Committee’s deliberations on the direction of rates.
We believe a rate cut at this point would induce pressure on the naira and potentially accelerate capital outflows. The aforementioned gives credence to our view that the Committee will favour keeping monetary policy parameters.
Global Central Banks Shift to “Maintaining Status Quo”
Given the ongoing uncertainty around the inflation trajectory in advanced economies, major central banks have adopted a cautious stance, preferring to hold rates steady until there is greater clarity on the price outlook. The US Fed, at its May 2026 meeting, held the rate steady at 3.50%-3.75% for the fourth consecutive time. The bank indicated that it remains cautious and needs evidence that inflation risks are muted before proceeding with its rate-cutting cycle. Given their cautiousness about interest rate cuts, we expect the Federal Open Market Committee (FOMC) to hold its policy rate steady until US inflation is much closer to the 2.0% target. Similarly, the European Central Bank (ECB) held rates steady at 2.0% for the fourth consecutive meeting, signalling its unwillingness to cut rates. The bank also dismissed the prospect of near-term rate cuts, citing its inflation outlook and concerns about the impact on economic growth. We expect the ECB to keep rates unchanged, given subdued economic activity in the Eurozone and the dampening effects of elevated borrowing costs on consumer demand.
In the United Kingdom (UK), the Bank of England also voted to hold the rate at 3.75% for the fourth consecutive meeting, citing renewed inflationary risks. The weak growth (Q1-26: 1.1% y/y vs Q4-25: 1.0% y/y) and sticky inflation (March 2026: 3.3% vs February 2026: 3.4%) in the UK place the BoE in a challenging policy position. As a result, we think a cut or hike in the BoE’s policy rates is less likely in the near term.
Collectively, the posture of major central banks reflects a global preference for policy stability amid an uncertain macroeconomic environment – a consideration the MPC is unlikely to ignore.
MPC to Hold Policy Rates
Taken together, the interplay of stable but fragile FX conditions, a moderating growth outlook, and sticky inflation provides the MPC with a clear basis for maintaining the current policy stance. Against this backdrop, we anticipate that the 305th MPC meeting will recommend a HOLD on the MPR at 26.50%. All other policy parameters, including Cash Reserve Ratio (CRR), Liquidity Ratio, and Standing Facilities Corridor, are expected to remain unchanged.
