Toni Kan explains how the Central Bank's inflation-targeting measures are restoring Nigerians' purchasing power.
When Olayemi Cardoso became governor of the Central Bank of Nigeria (CBN) in September 2023, the monetary policy rate (MPR) stood at 18.75%.
By February 2024, during the first Monetary Policy Committee (MPC) meeting of the year, the CBN raised the MPR by 400 basis points to 22.75%. Explaining the decision in Communique No. 150, the Bank noted that it was responding to "current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations," adding that members were "concerned about the persistent rise in the level of inflation."
Less than a month later, the MPR rose again by 200 basis points to 24.75%. This time the CBN said the move was driven by "current inflationary pressures and the need to anchor inflation expectations as well as ensure sustained exchange rate stability."
The underlying goal remained price stability and restoring Nigerians' purchasing power. The tightening cycle continued, and by the September 2024 MPC meeting, the MPR had climbed to 27.25%.
After months of aggressive tightening, the CBN shifted slightly in September 2025 with a drop to 27%. At its 304th MPC meeting on February 23 and 24, 2026, it announced a reduction of the MPR by 50 basis points to 26.5%. While many welcomed the decision, some critics worried - as they had as far back as February 2024 - that the minimal reduction would have a deleterious effect on kickstarting productive activity. However, the logic of the CBN's response to that concern in 2024 still holds: "an enduring output expansion is possible only in an environment of low and stable inflation."
Why the MPR matters
The MPR is the CBN's benchmark interest rate, influencing how much it costs banks and businesses to borrow. Its ripple effects extend to lending, money supply, investment decisions, and ultimately price stability. Under Cardoso, it has become the central tool of an explicit inflation-targeting strategy.
The February 2026 reduction serves both as a signal of growing stability and a note of caution. According to the CBN, Nigeria has recorded 11 consecutive months of declining headline inflation which is now down to 15.1% from 31.7% in February 2024. But the Bank's language makes clear: while the worst is over, risks persist.
A lower MPR reduces borrowing costs for businesses, easing pressure on economic activity. With only a marginal reduction, the CBN is balancing growth support with its commitment to price stability.
The slight easing signals some relief for firms dependent on credit - what the CBN calls the "pursuit of output growth." For households, lower borrowing costs can eventually support domestic production and ease prices, reinforcing confidence in the economy.
It is important to note that alongside the MPR adjustment, the CBN retained the asymmetric corridor at +50/-450 basis points. The corridor provides a framework that guides how banks borrow from or deposit money with the CBN. The apex bank also kept the cash reserve requirement (CRR) unchanged: 45% for deposit money banks, 16% for merchant banks, and 75% for non-Treasury Single Account public sector deposits.
What the asymmetric corridor of +50/-450 basis points means is that while the CBN wants to keep money in circulation on an even keel, it is encouraging banks to lend to the real sector, but prudently, instead of just dumping their funds with the apex bank.
How stability was achieved
The CBN's approach has been to control money supply by making borrowing costly enough that only genuinely productive activity is funded and prioritised. Such activity, in turn, creates jobs and lowers prices of domestically manufactured goods relative to imports.
Some may ask why interest rates remain about 9% higher than the inflation rate if fostering production is a priority. While the CBN has not stated this explicitly, many observers believe that high rates, especially during an election year, will help discourage fiscal excess and prodigality by politicians.
The CBN itself attributes the improving macroeconomic environment to a combination of factors: "continued effects of the contractionary monetary policy, stability in the foreign exchange market, robust capital inflows, and improvement in the balance of payments."
Stability in petroleum product prices and improved food supply, especially staples, also played important roles. The Bank concluded that earlier tightening had "continued to anchor expectations."
As we appraise the impacts of ongoing macroeconomic reforms, three developments stand out: high interest rates moderated inflation, improved foreign-exchange management has eliminated arbitrage and narrowed the gap between official and parallel-market rates, supporting the naira despite earlier devaluations, and foreign reserves have increased significantly, from $34.54bn in February 2024 to $50.45bn as of February 16, 2026, providing 9.68 months of import cover for goods and services.
Combined, these developments created the macroeconomic stability that has now allowed the CBN to begin cautious easing with Cardoso and his team staying true to his orthodox monetary policy regime.
The outlook
In the short to medium term, the CBN is likely to continue using the MPR as its primary inflation-targeting instrument. A dramatic cut is unlikely, particularly in an election year, even as inflation continues to decline.
One area of concern, however, is the potential impact of global geopolitical tensions, particularly the US-Israel war in Iran, and its effect on international oil prices.
Still, the Cardoso-led CBN has demonstrated that caution and confidence are not antithetical. That balance, a firm commitment to stability coupled with gradual easing, is likely to shape monetary policy for the foreseeable future.
This special report was produced with the support of the Central Bank of Nigeria. The editorial was produced independently of the CBN or the government.