At its 305th meeting, the Monetary Policy Committee (MPC) held the monetary policy rate and other liquidity-determinants constant. ISAAC CHIBUIFE writes that the decision, in the context of overwhelming pressure from the external market, goes beyond interest-rate fixing.

At its 305th meeting, the Monetary Policy Committee (MPC), the rate-fixing arm of the Central Bank of Nigeria (CBN), did what most analysts expected: it left the monetary policy rate (MPR) unchanged at 26.5 per cent. But beneath the likelihood of the decision lies a far more consequential debate about inflation credibility, exchange-rate management, banking sector resilience and the limits of Nigeria’s monetary policy framework.

The committee retained all key parameters. The asymmetric corridor around the MPR remained at +50 and -450 basis points, the cash reserve ratio (CRR) stayed at 45 per cent for deposit money banks (DMBs) and 16 per cent for merchant banks, while liquidity conditions for non-TSA public sector deposits were left unchanged at 75 per cent.

For the 11-member committee, the decision reflected caution rather than resistance. They chose to wait, assess evolving risks and avoid loosening policy prematurely amid renewed inflationary pressure. Yet while the outcome mirrored the MPC’s cautious posture at a previous meeting when it delivered its first rate cut after nearly two years of aggressive tightening, the rationale this time was markedly different.

The MPC’s primary concern was the return of inflationary pressure after months of moderation. Headline inflation rose for the second consecutive month to 15.69 per cent in April 2026 from 15.38 per cent in March, while food inflation climbed sharply to 16.06 per cent from 14.31 per cent.

The committee attributed the increase largely to higher transportation and logistics costs linked to geopolitical tensions in the Middle East, which raised global energy prices that filtered into domestic supply chains.

Still, the MPC framed the inflation rise as temporary rather than structural. It argued that exchange-rate stability, stronger external reserves, fiscal reforms and the banking sector recapitalisation had helped to shield the economy from a more severe inflation shock.

There is evidence supporting that position. Nigeria’s external reserves rose to $49.49 billion as of May 15, 2026, from $48.35 billion at the end of March, providing more than nine months of import cover. The naira has remained relatively stable, while the economy recorded 4.07 per cent GDP growth in the fourth quarter of 2025, driven by expansion in both oil and non-oil sectors.

The timing of the recent S&P Global rating upgrade also reinforced confidence within the committee that maintaining current rates was preferable to either tightening further or cutting too quickly. From this perspective, the MPC’s decision reflected a calibration option rather than hesitation.

But the decision also exposed a widening divide among economists over whether the apex bank has done enough to tame inflation or whether easing earlier this year may have come too soon.

Vice Chairman of Highcap Securities, David Adonri, said he had expected the MPC to tighten policy slightly in response to the recent uptick in inflation.

“I was expecting perhaps a little hike in the MPR because recently we were witnessing some spike in the inflation rate,” he said.

According to him, the decision to leave monetary aggregates unchanged suggests the committee remains committed to supporting economic growth despite inflationary concerns.

“What they have done is just to leave the monetary aggregates unchanged, indicating therefore that they are satisfied with the level of money supply and that they still are in pursuit of a pro-growth policy,” he added.

Adonri also suggested that the MPC may believe monetary policy tightening has largely run its course and that fiscal measures should now play a stronger role in stabilising the economy.

The decision drew a cautious approval from the Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, who argued that further tightening would have imposed additional strain on businesses already grappling with weak demand, high operating costs and expensive credit.

The think tank described the MPC’s stance as an act of “policy maturity and strategic restraint,” insisting that Nigeria’s inflation problem is largely supply-driven rather than demand-induced.

That distinction matters. Monetary tightening can curb excess liquidity, but it cannot directly resolve food supply bottlenecks, insecurity in farming communities, rising transport costs or external energy shocks – the reason economists consider monetary policy as a short-term tool.

The CPPE warned that additional hikes could undermine industrial recovery, suppress investment and weaken productivity. At 26.5 per cent, the MPR already sits at historically elevated levels, with commercial lending rates serving as punishment for manufacturers and small businesses reliant on bank financing.

The MPC acknowledged the risks but adjudged that loosening policy too early could reignite inflation and destabilise fragile macroeconomic gains.

Beyond the rate decision itself lies a more uncomfortable question – whether the data guiding monetary policy is sufficiently reliable. The concern was emphatically raised by the Executive Chairman of the Society for Analytical Economics, Prof. Godwin Owoh, who questioned the credibility of Nigeria’s inflation measurement framework.

Owoh argued that the country’s three most critical macroeconomic variables: inflation, exchange rate and interest rates — are built on weak statistical foundations and incomplete financial disclosures.

According to him, the absence of fully reconciled public accounts and audited financial statements limits the credibility of inflation forecasting and monetary modelling. In such conditions, policy projections risk serving as exercises in assumption rather than outcomes grounded in verifiable monetary flows.

The implication of the possibility is significant. If inflation measurements themselves are structurally uncertain, then the MPC’s confidence that current pressures are “transitory” becomes harder to defend conclusively.

He also challenged the effectiveness of Nigeria’s monetary transmission mechanism — the process through which policy rate changes influence borrowing costs, investment decisions and consumer behaviour.

He argued that persistent opacity in government fiscal operations has weakened the connection between the benchmark rate and actual credit conditions in the economy.

This concern has long shadowed Nigerian monetary policy. If rate changes do not pass efficiently through the financial system, then the effectiveness of tightening or easing becomes diluted.

The issue takes on added importance because the MPC is relying heavily on the assumption that previous tightening has already done enough disinflationary work. If transmission has been weak, inflation may prove more persistent than policymakers currently anticipate.

The relative stability of the naira has become one of the CBN’s strongest talking points. The MPC credited foreign exchange stability for helping to moderate imported inflation and reduce market volatility.

The CPPE similarly praised the CBN’s shift from what it described as “crisis management” to “confidence management,” arguing that improved FX stability has helped to restore investor confidence and curb speculative pressures.

But Owoh offered a more sceptical interpretation. While acknowledging the rise in external reserves, he questioned whether the CBN had been using reserves aggressively to defend the naira at levels unsupported by market fundamentals.

But this raises further questions. Why is the rigidity, if there is any, not reflected in a wider market arbitrage? Last week, both official and black market segments traded around N1370 to a dollar, showing the historical inefficiency that once supported a wide market spread may have been tackled.

Exchange-rate stability has clearly helped moderate inflationary pass-through. Yet without greater transparency, questions about the underlying cost of maintaining the stability are unlikely to disappear.

The MPC also devoted attention to the recently-concluded banking sector recapitalisation exercise, which the committee described as successful. The CBN Governor, Olayemi Cardoso, disclosed that the exercise injected N4.65 trillion into the economy, while the committee highlighted stronger financial soundness indicators across 33 banks.

The CPPE welcomed the process, noting that recapitalisation had been achieved without triggering systemic panic or major depositor anxiety.

But Owoh questioned the absence of clarity regarding the true economic cost of the exercise. The headline figure, he argued, reveals little about the net value created if high legal, administrative and advisory costs were incurred in the process.

“It looks well that the recapitalisation injected N4.65trn into the economy, but the cost incurred in the process was not disclosed. It is therefore not clear what the net injection is or the verified sources,” he said.

The economist also argued that the continued reliance on the MPR as the dominant policy instrument may no longer suit the realities of the Nigerian economy. In his view, excessive focus on the benchmark rate risks amplifying volatility across inflation, exchange rates and borrowing costs rather than resolving underlying distortions.

The next MPC meeting, scheduled for July 21 and 22, could prove more consequential. If inflation eases in May and June, food supply improves with the harvest season and exchange-rate stability holds, the committee may resume the gradual easing cycle it began in March.

Adonri believes the committee’s next move will depend largely on the inflation trajectory over the coming months. According to him, if inflation continues to rise in May and June, the MPC may have little choice but to resume tightening.

“If the inflation rate continues to spike, then it will be a compelling reason for the central bank to resume tightening monetary policy,” he said.

He added that the CBN may also intensify the use of open market operations to moderate liquidity and contain inflationary pressure even without an immediate hike in the benchmark rate.