Nigeria’s consecutive declines in inflation have strengthened the case for a possible interest rate cut at the September Monetary Policy Committee (MPC) meeting, but analysts expect the Central Bank of Nigeria (CBN) to maintain its current monetary policy stance, citing its new Open Market Operations (OMO) rules and other liquidity management measures.
Nigeria’s headline inflation decelerated in July 2026 to 15.43 percent year-on-year from 15.91 percent in June, marking a second consecutive decline and the sharpest monthly slowdown so far this year.
On a month-on-month basis, inflation eased to 1.57 percent from 1.66 percent in June. However, the data masks a divergence in price pressures, as food inflation rose to 5.56 percent from 3.75 percent, while core inflation dropped sharply to 0.15 percent from 1.66 percent, alongside a 2.39 percent decline in energy prices.
Overall, the disinflation was driven by easing core and energy pressures, even as food inflation accelerated.
The CBN has held its benchmark interest rate, known as the Monetary Policy Rate (MPR), for two consecutive meetings, including its July 2026 meeting.
The MPC of the CBN concluded its July meeting by unanimously voting to retain all monetary policy parameters, underscoring the committee’s cautious stance amid the marginal moderation in headline inflation and heightened global uncertainties.
The committee maintained the MPR at 26.50 percent, unchanged since the 50-basis-point reduction in February. It also retained the asymmetric corridor around the MPR at +50/-450 basis points, the Liquidity Ratio at 30.0 percent, and the Cash Reserve Ratio (CRR) at 45.0 percent for Deposit Money Banks, 16.0 percent for Merchant Banks, and 75.0 percent for non-TSA public sector deposits.
The CBN’s recent changes to its OMO and Discount Window framework could further strengthen the case for keeping the MPR unchanged, as the apex bank now has greater flexibility to manage liquidity without relying solely on changes to its benchmark interest rate.
The CBN recently removed restrictions that prevented banks from accessing its Standing Lending Facility, also known as the Discount Window, after participating in foreign exchange transactions and primary auctions of government securities.
However, the apex bank retained the restriction preventing institutions accessing the Discount Window from participating in OMO auctions on the same day.
At the same time, the CBN broadened participation in OMO auctions, allowing individuals, corporates, and non-bank financial institutions to participate in both primary and secondary markets through Deposit Money Banks. The banks will continue to submit bids and settle transactions on behalf of their customers.
The changes are part of the CBN’s review of the framework governing access to the Discount Window, Tenored Repo Operations and participation in OMO, as the bank seeks to improve money market functioning and strengthen monetary policy implementation.
The apex bank also lifted the suspension of Tenored Repo Operations, allowing it to conduct repo operations across approved tenors ranging from four to 90 days.
The expanded OMO participation and restoration of Tenored Repo Operations give the CBN additional instruments to absorb or inject liquidity into the financial system, potentially reducing the need to adjust the MPR in response to short-term liquidity conditions.
Ayodeji Ebo, chief executive officer of MDU Capital, said he expects the MPC to hold the MPR in September despite the deceleration in headline inflation.
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“I expect the MPC to hold the MPR in September despite the deceleration in headline inflation. Food inflation remains elevated, keeping month-on-month price pressures high. Although the harvest season may provide some relief, the committee will likely wait for sustained and broad-based moderation in inflation before considering a rate cut,” Ebo said.
Tunde Abidoye, head of research at Quest Merchant Bank, also does not expect the disinflation to translate into an immediate rate cut.
“Not sure I do. It’s a possibility given the CBN’s recent circular on OMOs. But even if they cut, I expect it to be a modest cut for a number of reasons,” Abidoye said.
Leading other analysts at Quest Merchant Bank, Abidoye said the MPC is scheduled to hold its next meeting in September and is likely to retain a cautious policy stance as policymakers seek further confirmation that the ongoing disinflationary trend is durable and sufficiently entrenched.
“Despite the sustained moderation in headline inflation, we expect the CBN to retain a cautious policy stance as policymakers seek further confirmation that the ongoing disinflationary trend is durable and sufficiently entrenched,” the analysts said.
They added that persistent geopolitical tensions in the Middle East and the risk of election-related spending ahead of the 2027 general elections could still exert upward pressure on the inflation outlook later in the year.
“While disinflationary trends remain encouraging, food price pressures, geopolitical risks, and emerging pre-election spending support a cautious monetary policy stance,” they said.
Ayodele Akinwunmi, chief economist at United Capital Plc, said several factors would shape the MPC’s next decision, including sustained disinflation, the trajectory of money supply in line with broader economic objectives and robust GDP growth capable of alleviating poverty.
He added that electioneering expenditure and external developments, particularly those influencing the naira’s value, would remain critical to the policy debate.
“While it is too early to determine whether the CBN will lower rates, one thing appears clear: the MPC is unlikely to raise them. Current Open Market Operation (OMO) measures to absorb excess liquidity in the financial system are proving more efficient than further tightening through higher interest rates,” Akinwunmi said.
“This approach allows the bank to maintain stability without stifling growth, striking a delicate balance between inflation control and economic expansion,” he said.
Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto & Co., said he expects the MPC to maintain its current rates given prevailing uncertainties in the global market.
“I think the MPC will maintain the rates given the prevailing uncertainties in the global market,” Olubunmi said.
Analysts at Parthian Partners expect the disinflationary trend to continue gradually, supported by relative exchange rate stability, lower energy costs and the lingering effects of the CBN’s tight monetary policy.
However, they said the pace of moderation is likely to remain uneven, with food inflation presenting the key upside risk.
Although the harvest season has commenced, heightened insecurity, logistics constraints and infrastructure deficits are likely to continue weighing on food supply and prices.
“The July data provides greater support for an eventual easing of monetary policy, particularly given the sharp moderation in core and month-on-month inflation. However, the acceleration in food inflation is likely to reinforce the CBN’s cautious stance, as premature easing could risk reigniting broader price pressures,” the analysts said.
They added that the August inflation report, which will be released ahead of the September MPC meeting, will form part of the committee’s assessment in determining its next policy decision.
Similarly, analysts at Comercio Partners expect headline disinflation to continue gradually, supported by sustained moderation in core inflation and reduced exchange rate volatility.
However, they said their outlook remains subject to risks from persistent food-price pressures and a potential increase in election-related spending.
“As political activity intensifies, stronger demand across food, transport, accommodation, and FX could accelerate price increases across the economy,” the analysts said.
Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), said the latest marginal decline in inflation was not enough to warrant expectations of a rate cut, as several inflationary pressures remained unresolved.
“I don’t think there is any prospect of a rate cut. This is a very, very marginal drop in inflation, and I don’t think it is enough to move the needle as far as a rate cut is concerned,” Yusuf said.
He said geopolitical tensions, high energy prices and elevated transportation costs remained key drivers of inflation, stressing that these factors had not subsided despite the recent moderation in inflation.
“So, it is too early to expect a rate cut because those factors are still very much there,” he said.
According to Yusuf, the most likely outcome at this stage is for the monetary policy rate to be kept unchanged, given the persistence of inflationary pressures.
“I think the best we can expect is probably a hold,” he said, adding that “most of those factors that impact inflation and drive inflationary pressures are still very much in place.”
He cautioned against celebrating the latest decline in inflation, saying, “It is too early to begin to celebrate.”
Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy.
