Nigeria’s sustained monetary tightening has played a central role in slowing inflation, with research estimates showing that the Central Bank of Nigeria’s policy stance accounted for as much as 10 percentage points of the decline in headline inflation, according to CBN Governor and Monetary Policy Committee Chairman, Olayemi Cardoso.
Cardoso made this disclosure in his personal statement at the November 2025 MPC meeting, describing it as strong counterfactual evidence of the effectiveness of monetary policy despite significant domestic and global headwinds.
He said the outcome reinforces the need for bold, consistent actions to preserve price stability.
What Cardoso said
The CBN governor’s personal statement read, “Research estimates indicate that our tight policy stance has accounted for up to 10 percentage points of the decline in headline inflation, providing encouraging counterfactual evidence on the effectiveness of monetary policy in the current environment and a reminder of the need to consistently take bold actions.”
Nairametrics observed that headline inflation declined to 16.05% in October 2025 from 18.02% in September and is now 8.43 percentage points lower than the 24.48% recorded in January 2025.
The CBN governor noted that the disinflation has been broad-based, cutting across headline, food and core inflation, with momentum strengthening in recent months.
According to him, the slowdown reflects reduced foreign exchange volatility, easing food prices and better-anchored inflation expectations, supported by a relatively stronger naira.
He added that the exchange rate has become significantly less volatile and has shown signs of market-driven appreciation, while foreign reserves have continued to strengthen due to reforms that improved capital inflows and triggered structural shifts in Nigeria’s balance of payments.
Improved stability, but risks remain
Beyond inflation, Cardoso said macroeconomic conditions have improved, with rising investor confidence, stronger external buffers and positive business and household sentiment supporting long-term investment in critical sectors of the economy.
However, he warned that risks to the outlook remain elevated. He cited global uncertainties, geopolitical tensions and Nigeria’s recent designation by the United States as a “Country of Particular Concern”, noting that while the designation is rooted in security issues, it could have economic spillover effects
Domestically, the 2026 political cycle was identified as another key risk, given the historical link between pre-election fiscal expansion and inflationary pressures, exchange rate depreciation and external sector stress.
The CBN governor stressed that fiscal reforms, though necessary, often take time to deliver results and may introduce new challenges in the interim. As a result, he said monetary policy must remain alert and proactive, with early-warning signals continuously recalibrated to prevent any reversal in the disinflationary trend.
Cardoso said deliberations at the November meeting clearly supported maintaining a tight monetary stance. He identified excess system liquidity as a major threat to price stability, arguing that holding policy rates steady would reinforce stability and signal confidence that the current stance is delivering the desired results.
He added that improved anchoring of overnight market rates within the standing facilities corridor shows stronger policy transmission to the wholesale market, providing room for operational adjustments to better manage liquidity conditions.
Based on this assessment, Cardoso supported retaining the Monetary Policy Rate at 27%, adjusting the standing facilities corridor to +50/-450 basis points, maintaining a 45% cash reserve ratio for commercial banks and a 75% CRR on non-TSA public sector deposits, and keeping the liquidity ratio unchanged at 30%.
While acknowledging that monetary policy alone cannot guarantee sustainable growth, Cardoso said the current tight stance remains critical to safeguarding stability and creating the conditions for broader structural reforms to take root over time.
