The Monetary Policy Committee (MPC) of the Central Bank of Nigeria is scheduled to hold its first meeting of the year on 23–24 February. Since the previous meeting, risks to global economic stability have increased amid heightened geopolitical tensions and policy uncertainties. Nonetheless, the recent weakening of the US dollar has provided some relief to emerging and frontier markets by easing external financing pressures and improving capital flow dynamics.
Domestically, inflation has continued to moderate, supported by exchange rate stability and relatively contained energy costs. Despite elevated global uncertainties, the combination of a softer dollar and attractive naira yields has sustained foreign investor interest, reinforcing the currency’s appreciation and reducing near term inflation risks. Against this more favourable macroeconomic backdrop, we expect the MPC to resume its easing cycle following its pause in November. Specifically, we anticipate a 50bps reduction in the Monetary Policy Rate (MPR) to 26.50%, while maintaining all other policy parameters unchanged.
Global Policy Uncertainties Reinforces Cautious Monetary Stance
Since the last MPC meeting in November, the global environment has become more volatile. This has been largely driven by the US’ more assertive foreign policy, including renewed trade tensions, stricter sanctions enforcement, and increased geopolitical engagement across parts of the Middle East, Latin America, and East Asia. These developments have partly unsettled financial markets and heightened uncertainty. While some measures have subsequently been softened or delayed, policy direction in the US remains unanchored. This has sustained elevated uncertainty, while reinforcing a cautious, data dependent approach to policymaking across major advanced economies.
Specifically, at its January meeting, the Federal Reserve voted to keep the policy rate unchanged at 3.50% – 3.75%, citing elevated inflation and a stable unemployment rate. The Committee also highlighted that uncertainty about the economic outlook remains elevated and reiterated a data dependent approach to assessing the appropriate stance of monetary policy. In the United Kingdom, the Bank of England (BoE) adopted a similarly cautious tone. At its February meeting, the BoE opted to hold the Bank Rate steady at 3.75%, though the decision was passed by a slim 5–4 majority. The narrow margin reflects the Committee’s division between lingering concerns over sticky services inflation and increasing worries about weakening domestic demand. Overall, the outcome suggests that while policy remains restrictive, the balance of risks is gradually shifting, and a move toward measured easing could materialise if disinflation progresses and growth momentum continues to soften.
In the Euro area, the European Central Bank (ECB) has also remained on hold, leaving its key rates unchanged at its 5 February 2026 meeting (deposit facility: 2.00%; main refinancing operations: 2.15%; marginal lending facility: 2.40%). The ECB highlighted that inflation is moderating and economic activity remains resilient, while the economic outlook remains uncertain due to global trade policy uncertainty and geopolitical tensions. For us, while inflation may continue to undershoot the 2.0% target, resilient economic growth and a broadly neutral policy stance suggest the ECB is likely to keep rates unchanged in the near term.
On global growth, the International Monetary Fund (IMF) raised its 2026 global growth projection to 3.3% y/y (Previous: 3.2% y/y), reflecting stronger-than-expected resilience in major advanced economies, particularly the United States, alongside sustained expansion across several large emerging markets. The upward revision is underpinned by firm labour market conditions, improving real incomes as inflation moderates, and continued investment in technology and infrastructure. Nonetheless, the IMF notes that growth remains uneven across regions and below pre-pandemic averages, with downside risks stemming from geopolitical fragmentation, trade restrictions, and tighter financial conditions in vulnerable economies.
Non-oil Economy to Drive Q4-25 Growth Momentum
The Central Bank of Nigeria’s composite Purchasing Managers’ Index (PMI) indicates that economic activity remained firmly expansionary in Q4-25, with momentum concentrated in the non-oil sector. The composite PMI rose to 57.6 points in December from 54.0 points in September, reflecting broad based expansion across the agriculture (58.5 points vs September: 54.8 points), industry (57.0 points vs September: 51.4 points), and services (56.4 points vs September: 54.7 points) sectors. We attribute the sustained expansion partly to seasonal dynamics, including stronger consumer spending during the festive period and improved agricultural output linked to the main harvest cycle. In addition, relatively moderate cost pressures and continued expansion in digital and service-oriented activities likely provided structural support to business activity. Against this backdrop, we estimate that the non-oil sector expanded by 4.11% y/y in Q4-25, compared with 3.91% y/y in Q3-25 and 3.80% y/y in Q4-24.
By contrast, developments in the oil sector were less supportive. Data from the Nigerian Upstream Petroleum Regulatory Commission show that crude oil production moderated to an average of 1.58 mb/d in Q4-25, down from 1.64 mb/d in Q3-25 and 1.63 mb/d in Q4-24. The sequential decline was likely driven by planned turnaround maintenance across key deepwater assets, alongside operational disruptions reflecting ongoing vulnerabilities in production and export infrastructure. Consequently, we estimate that the oil sector contracted by 2.83% y/y in Q4-25, compared with growth of 5.84% y/y in Q3-25 and 2.08% y/y in Q4-24.
Overall, we estimate that real GDP expanded by 3.92% y/y in Q4-25, marginally lower than 3.98% y/y in the preceding quarter but above 3.80% recorded in the corresponding period of 2024. This should lead to full year growth of 3.81% y/y in 2025E (2024FY: 3.34% y/y)
Headline Inflation Surprises to the Downside in January
National Bureau of Statistics (NBS) data showed a marginal decline in headline inflation to 15.10% y/y in January (December: 15.15% y/y), defying broad expectations of a sharp increase (Bloomberg median estimate: 19.50% y/y | Cordros estimate: 18.95% y/y), linked to base effects stemming from the rebased CPI data. Food inflation declined by 195bps to 8.90% y/y (December: 10.84% y/y), while core inflation (all items less farm produce and energy) eased by 91bps to 17.72% y/y (December: 18.63% y/y). On a month-on-month basis, the CPI index fell sharply by 2.88% (December: +0.54% m/m), marking a significant reversal from the prior month’s increase.
The moderation in price pressures appears partly driven by a post-festive slowdown in consumer demand, relative stability of the naira and stable energy prices. However, we assess that the magnitude of the month-on-month decline likely reflects statistical effects associated with the revised CPI basket, as underlying supply conditions do not appear sufficiently improved to justify the pronounced contraction in prices. Looking ahead, while we expect inflation to increase modestly by 1.38% m/m in February, driven by firmer farm produce prices and moderate energy cost pressures, the recent appreciation of the naira should help contain exchange rate passthrough, allowing headline inflation to ease further to 14.35% y/y (January: 15.10%) on favourable base effects.
Weaker Dollar Fuels Stronger Capital Inflow and Naira Appreciation
Year-to-date, the naira has recorded notable gains, appreciating by 6.7% to NGN1,345.00/USD as of 19 February. This strong performance has been underpinned primarily by increased offshore participation in the Nigerian foreign exchange market, supported by attractive real yields and strong investor confidence.
Additionally, the recent bout of US dollar weakness has provided a favourable external backdrop. The softer dollar reflects growing investor concerns around US policy coherence, fiscal sustainability, and the evolving monetary policy outlook, which have collectively tempered demand for the greenback. Against this backdrop, capital flows have rotated toward select high-yielding emerging and frontier markets, including Nigeria, thereby reinforcing FX inflows and supporting the naira’s appreciation.
According to the FMDQ, inflows from foreign sources rose significantly by 111.5% m/m to USD1.79 billion (December: USD847.40 million), due to higher accretions from the FPI (+135.1% m/m) and other corporate (+74.8% m/m) segments, which more than offset the decline in inflows from the FDI (-40.0% m/m) segment. On the other hand, inflows from local sources fell by 51.9% m/m to USD1.22 billion in January (December: USD2.52 billion) driven by decline in inflows from the CBN (-95.1% m/m), individuals (-59.1% m/m), exporters/importers (-28.5% m/m) and non-bank corporates (-28.3% m/m) segments. Overall, total inflows moderated by 10.8% m/m but remained robust at USD3.00 billion in January (December: USD3.37 billion).
In addition, FX reserves sustained accretion, increasing by 6.6% YTD to USD48.37 billion as of 17 February, supported by improved FX inflows from oil, FX purchases from FPIs, and reduced external debt repayments. Looking ahead, we expect the naira to maintain its strength, underpinned by sustained foreign portfolio inflows, attractive real yield differentials, and continued improvements in FX liquidity conditions. In addition, a supportive external backdrop and rising external reserves should enhance the CBN’s capacity to smooth volatility and reinforce investor confidence, thereby limiting the risk of abrupt currency pressures in the near term.
MPC Likely to Deliver 50bps Rate Cut
Despite sustained moderation in inflation, the MPC has continued to adopt a cautious approach to policy adjustment, partly reflecting, in our view, technical uncertainties surrounding the rebased CPI series. Beyond the Committee’s official rationale, we believe the decision to maintain the policy rate at the previous meeting was partly influenced by concerns about a potential short term uptick in headline inflation in December. This caution was evident in the narrow split reflected in the published personal statements, where six members voted to retain the MPR at 27.0%, citing the risk of a short-term rebound in headline inflation driven by base effects, while five members supported a 50bps cut.
However, the anticipated spike did not materialise, following the revision of the CPI index reference period. Instead, headline inflation moderated further in January against broad market expectations, although we assess that the magnitude of the decline was largely mechanically driven. While some uncertainty around the rebased CPI framework persists, we do not foresee any imminent technical distortions that could materially alter the inflation path or undermine policy credibility. Furthermore, improving exchange rate stability and easing supply side pressures provide structural support for continued disinflation. In addition, the external backdrop remains relatively favourable, with a softer US dollar and stable global financial conditions sustaining capital flows toward high-yield emerging and frontier markets, including Nigeria.
Accordingly, these developments provide room for a gradual adjustment of the policy stance, with the Committee likely remaining mindful of inflation dynamics and external sector risks. On this basis, we expect the MPC to reduce the Monetary Policy Rate by 50bps to 26.50% at its upcoming February meeting, while leaving all other policy parameters unchanged.
Cordros
