CBN Cuts Benchmark Rate to 26.5% as Inflation Eases for 11th Straight Month

Oru Leonard 

The Central Bank of Nigeria (CBN), has reduced its benchmark Monetary Policy Rate (MPR) by 50 basis points to 26.5 per cent, signaling a cautious shift toward monetary easing amid sustained disinflation and improving macroeconomic conditions.

The decision was taken at the 304th meeting of the Monetary Policy Committee (MPC), held February 23–24, 2026, with all 11 members in attendance.

The MPC alongside the rate cut took soem key policy decisions which include:
– Retaining the Standing Facilities Corridor at +50/-450 basis points around the MPR; Maintaining the Cash Reserve. Requirement (CRR) at 45 per cent for Deposit Money Banks, 16 per cent for Merchant Banks, and 75 per cent for non-TSA public sector deposits.

According to CBN’s statement, the move marks the first easing step after a prolonged tightening cycle aimed at curbing inflation and stabilizing the foreign exchange market.

Inflation Downtrend Anchors Policy Shift
Headline inflation eased to 15.10 per cent year-on-year in January 2026, marking the eleventh consecutive month of decline. Food inflation dropped sharply to 8.89 per cent from 10.84 per cent in December, while core inflation moderated to 17.72 per cent.

Month-on-month, inflation contracted by -2.88 per cent, indicating a broad softening in price pressures.

The MPC attributed the sustained moderation to:
Lagged impact of earlier monetary tightening

Stability in the foreign exchange market
Strong capital inflows and improved balance of payments
Relative stability in petroleum product prices
Improved domestic food supply.

Analysis:
The rate cut reflects growing confidence within the CBN that inflation expectations are becoming anchored. With food prices easing significantly — a critical driver of Nigeria’s inflation basket — policymakers appear comfortable beginning a gradual normalization process without jeopardizing price stability.

However, inflation at 15.1 per cent remains elevated relative to historical norms, suggesting that the easing cycle may be measured rather than aggressive.
External Sector Strength Bolsters Confidence.

Nigeria’s gross external reserves rose to US$50.45 billion as of February 16, 2026 — the highest level in 13 years — providing 9.68 months of import cover.
The MPC highlighted:
Stronger export earnings
Increased remittance inflows
Robust capital inflows
Greater exchange rate stability.

The Committee also welcomed Presidential Executive Order 09, which redirects oil and gas revenues into the Federation Account, potentially strengthening fiscal buffers and reserve accretion.

Analysis:
The surge in reserves significantly improves Nigeria’s external vulnerability metrics and reduces exchange rate risk — a key transmission channel for inflation. This stronger buffer likely provided the policy space for the MPC to initiate easing without triggering currency instability.

If reserves remain strong, the naira could remain relatively stable, reinforcing the disinflation trend.
Banking Sector Resilience and Recapitalization Progress.

The MPC noted continued resilience in the banking sector, with key financial soundness indicators remaining within regulatory thresholds.
Out of 33 banks that have raised additional capital under the recapitalization programme, 20 have met the new minimum capital requirements.

Analysis:
A well-capitalized banking system strengthens monetary transmission and reduces systemic risk during policy transitions. The progress in recapitalization provides reassurance that moderate easing will not undermine financial stability.

Moreover, stronger bank balance sheets could support credit expansion as rates begin to ease.

Growth Indicators Improve
The Purchasing Managers’ Index (PMI) stood at 55.7 points in January 2026, indicating continued expansion in economic activity and potential output improvement in Q4 2025.
Globally, economic growth is projected to strengthen in 2026, supported by easing monetary conditions and investment in AI-related technologies, though risks such as rising protectionism and geo-economic fragmentation remain.
Analysis:
With growth expanding and inflation moderating, the CBN appears to be pursuing a “soft landing” strategy — gradually lowering rates to support output without reigniting inflationary pressures.

However, the MPC flagged election-related fiscal spending as a potential upside risk to inflation in the near term. Excess liquidity from fiscal expansion could complicate the easing trajectory.

Outlook: Gradual Easing Likely
The MPC reaffirmed its commitment to price stability and financial system resilience. The outlook suggests that disinflation will continue, supported by exchange rate stability and improved food supply.
Still, policymakers signaled vigilance against fiscal risks and global uncertainties.
The next MPC meeting is scheduled for May 19–20, 2026.

Market Implications
Fixed Income: Bond yields may ease modestly as markets price in further gradual rate cuts.
Equities: Banking and consumer goods stocks could benefit from lower borrowing costs.
Currency: The naira outlook remains tied to reserve levels and capital flows.
Credit Conditions: Lending rates may begin to moderate if easing continues.

Bottom Line.

The 50 basis point cut represents a cautious pivot rather than a full policy reversal. With inflation falling, reserves rising, and banks strengthening, the CBN appears confident that the worst of the price shock has passed.
The critical question now is whether fiscal discipline and external stability can be sustained long enough to allow a steady, controlled easing cycle.