Tackling inflation with monetary instruments, structural reforms

The CBN’s decision adjusting the Standing Facility corridor around the Monetary Policy Rate (MPR) at +50/-450 basis points represents sanction against banks not keen on lending to real sector. By adjusting the Standing Facility corridor around the MPR from +250/-250 basis points to +50/-450 basis points, banks taking excess deposits to CBN instead of lending to businesses will now be paid 450 basis points below the 27 per cent benchmark interest rate.

The Monetary Policy Committee’s decision was underpinned by the need to sustain the progress made so far towards achieving low and stable inflation. The MPC reaffirmed its commitment to a data-driven assessment of developments and outlook to guide future policy decisions.

Confirming the development, Managing Financial Derivatives Company Limited, Bismarck Rewane, said that by reducing the amount CBN pays to banks taking idle funds to its vaults, will accelerate lending. For the MPC to adjust the asymmetric corridor means that the apex bank will not be paying much to banks for keeping money idle at the Central Bank, which is the key thing.

Rewane explained that the CBN’s decision, which signals positive yields on short-term assets, will continue to strengthen portfolio capital inflows, support the naira, and reinforce the disinflation path. “The MPC’s decision also reflects current global trends emphasising central bank autonomy and independence, as seen in most advanced economies.

“The next MPC meeting is in February 2026. In the coming days, a cautious “wait-and-see” approach is expected, with T-bill rates and debt management policies under close scrutiny. The naira will likely trade in a range of N1,450–N1,500/$ in the near term, while GDP growth is projected at 3.9 per cent in 2025 and 4.2 per cent in 2026. However, 2026 presents key risks of imponderables and exogenous shocks, including a likely fall in the price of Brent to $55pb,” he said.

Other analysts said that Monetary Policy is always conducted by influencing monetary and credit conditions to achieve set macroeconomic goals, and by adjusting the Standing Facility corridor around the MPR, the intension is to boost lending to the domestic economy.

Managing Director of Afrinvest West Africa Limited, Ike Chioke, said the policies of the Central Bank of Nigeria, particularly exchange rate unification, have attracted significant foreign capital inflows into the economy while reducing the bank’s direct interventions in the foreign exchange market. He noted that the floatation of the naira, alongside the clearance of more than $7 billion in foreign exchange backlog, has improved Nigeria’s perception among foreign investors and multilateral institutions. Organisations such as the World Bank, he added, have described the reforms as bold measures capable of strengthening the economy’s long-term sustainability.

Read Also: Inflation eases to 15.10 per cent in January 2026 with lower food, fuel, gas prices

More loans to private sector

The CBN’s money and credit statistics showed that N74.41 trillion credit was extended to the private sector in October. The figure represents improvement from N72.53 trillion in September, and an increase of about N1.88 trillion represents a month-on-month growth. It represents the strongest positive movement so far in 2025.

On a year-on-year basis, credit to the private sector increased only slightly, from N74.07 trillion in October 2024 to N74.41 trillion in October. The modest annual gain shows that while the stock of private credit is broadly back to where it was a year earlier, the real story is the short-term rebound that followed the September rate cut.

Cardoso said: “MSMEs remain central to our efforts. Last year alone, microfinance lending expanded by over 14 per cent, and new digital-credit products reached more than 1.2 million small enterprises — evidence of the sector’s growing depth and capacity. We are improving access to credit, supporting microfinance institutions, and expanding financial products tailored to smaller enterprises.

“The Central Bank of Nigeria will continue to steer monetary policy with discipline, anchored firmly to its core mandate of price stability. Stability remains the bedrock upon which investment flourishes, resources are allocated efficiently, and purchasing power is protected. In 2026, we will deepen engagement with stakeholders, strengthen collaboration with other regulators and international partners, and foster responsible innovation across the financial system,” he said.

Reserves record significant increase

Nigeria’s gross external reserves rose to $46.8 billion as of February 4, marking the highest level in eight years, with capacity to cover 14 months imports for the country. The reserves position represents an 18.9 per cent increase from $38.88 billion in January 2025. The improvement is attributed to increased oil exports, diaspora inflows, and foreign portfolio investments.

Rewane said stronger external reserves have helped to ease pressure on the naira, which appreciated by 0.65 per cent to N1,385/$. “This is the strongest level of the naira in the last two years when it was N1,329.65/$ in May 2024. Improved reserve buffers have also lifted import cover to 14 months, helping reduce exchange-rate pass-through to inflation, lower input-cost volatility for small and medium-sized businesses, and support household purchasing power and consumer confidence ahead of the pre-election year,” he said.

 He estimated the fair value of the naira at about N1,257 to the US dollar.

Rewane posits that the local currency is undervalued by approximately 11 per cent when assessed using the purchasing power parity (PPP) model.

He noted that currencies typically converge towards their PPP-implied values over a five-year horizon. According to him, the appropriate exchange rate based on current PPP estimates stands at N1,256.79 to the dollar, reinforcing the view that the naira remains below its fair valuation level.

President, Association of Bureaux De Change Operators of Nigeria (ABCON), Aminu Gwadabe, said the naira has remained stable across market for several months, ending years of volatility in the market. Other factors driving reserves build-up include improved FX inflows, higher oil receipts, increased remittances through official channels and renewed interest from foreign portfolio investors following FX market reforms instituted by the Cardoso-led CBN. Overall, strong reserves position will continue to bolster exchange rate and promote financial sector stability.

Other industry data shows that Nigeria’s external reserves were last at this level on August 27, 2018, when it stood at $45.9 billion. The reserve build-up signals stronger buffers for import cover and currency stability, reflecting steady inflows and improved foreign exchange management since the forex reforms began, as the country prepares for a general election. The CBN data also suggests a notable turnaround from the volatility experienced during the early phase of the new forex regime, with the reserves closing at about $45.5 billion in 2025, having opened the year at roughly $40.8 billion.

Analysts have expressed optimism that the steady growth of Nigeria’s external reserve for several months will be sustained this year. They said the various reforms by the government have brought stability and confidence, thereby causing improvement in the country’s external reserves. They, however, noted that while the reserves can be sustained in the short term, sustaining the momentum throughout the election year will depend on discipline on the part of the government.

The founder/Chief Executive Officer of the Centre for the Promotion of Public Enterprise (CPPE), Dr. Muda Yusuf, hinted at a positive outlook for Nigeria’s external reserves as he does not see anything derailing the forex and fiscal reforms that have brought about stability and improvement in external reserves. Yusuf said, ‘’Well, the outlook for me is positive because I don’t see anything derailing these reforms which have brought about stability, inspiring confidence in the economy.  It is the confidence that has allowed the improvement in the reserves. The reserves are not so much coming from oil, though. I don’t have the full breakdown. But my sense is that the reserves are coming from largely outside the oil – FDI, portfolio, diaspora flows, non-oil exports etc. Quite a lot is happening outside traditional sources of forex.”

Other analysts said the growth in the external reserves can only be sustained in 2026 if the CBN avoids excessive FX intervention, fiscal authorities are restrained from spending pressures and the FX reforms are not reversed. They said, “Historically, election cycles in Nigeria tend to introduce policy uncertainty, FX demand pressure, and capital flow reversals. So, while reserves can be sustained in the short term, maintaining this momentum throughout an election year will depend on discipline.”

The CBN had, in its 2026 Macroeconomic Outlook for Nigeria, projected that Nigeria’s external reserve would rise to $51.04 billion in 2026, supported by stronger oil earnings, foreign exchange (FX) market reforms, and improved external inflows. The apex bank said the outlook reflects higher oil revenues, increased bond issuance, sustained diaspora remittances, FX market reforms, and expanded domestic refining capacity.

Fiscal‑monetary coordination

Findings showed that monetary policy reform cannot be effective in a vacuum. As the CBN transitions towards a full‑fledged inflation‑targeting framework, the monetary and fiscal policy partnership will deepen, ensuring fiscal and monetary policies reinforce each other in delivering durable price stability. The alignment with fiscal policy has strengthened Nigeria’s macro stability and yielded tangible results including reduced domestic borrowing costs, improved liquidity conditions, and more predictable fiscal operations to promote growth.

With the International Monetary Fund (IMF) and World Bank projection of the Nigerian economy growth at about five per cent this year, analysts said the country is on the right path to achieve sustained growth of at least seven per cent by 2027–2028. For them, the growth is driven by ongoing macroeconomic and structural reforms aimed at restoring stability, boosting productivity and deepening inclusion. They noted that global trade and investment dynamics are shifting rapidly, with increasing protectionism, fragmented supply chains and more cautious capital flows making it imperative for countries such as Nigeria to build resilience through domestic reforms.

Besides, the fiscal authorities have embarked on key institutional reforms – including the implementation of a Revenue Optimisation (RevOp) framework, the establishment of a new National Revenue Agency, and upgrades to the Treasury Single Account (TSA) – to strengthen revenue mobilisation and public financial management.

Major policy shifts lifting economy

Founder and Chief Consultant of B. Adedipe Associates Limited (BAA Consult), Prof. Abiodun Adedipe, listed major policy shifts yielding positive results for the economy. He said that the CBN has eliminated  strange arbitraging and round-tripping opportunity through the forex market reforms; through petrol subsidy removal, the Federal Government Remove crippling annual waste of US$10.7 billion and created environment for competition; bank recapitalisation is creating stronger and more capable banks to fund US$1 trillion economy while fiscal consolidation is plugging leakages, deploying technology and making government agencies more accountable and expanding fiscal space at sub-national.

He said that Nigeria’s economy is supported by large, youthful and rapidly growing population (estimated at 237.53 million in July 2025 and sixth largest in the world, median age at 18.1 years). The country, he said, also benefits from rapid urbanisation with 54.28 per cent in December 2023, up from 46.12 per cent in 2013 and 51.96 per cent in 2020, deepening internet penetration which is at 48.15 per cent in April 2025, up from 45.57 per cent in August 2023 and 31.48 per cent in December 2018.

Nigeria’s tele-density at 79.65 per cent in May 2025, from 76.08 per cent in December 2024 and 102.97 per cent in Dec 2023, due to data cleanup at end of April 2024. “On global internet users shows that Nigeria with 123 million ranks 11th and 7th with over 84 per cent on mobile devices. Local oil refining continues to expand and prospects of new refineries, manufacturing is reviving and there is expanding interest in non-oil exports. Improvement in infrastructure will begin to positively impact the cost of doing business,” he said.