The Central Bank of Nigeria (CBN) is facing a delicate balancing act as it prepares to navigate the complex economic currents of 2026.
With inflation showing a steady decline throughout 2025, the bank is now in a position to continue cutting its benchmark Monetary Policy Rate (MPR) from its current high.
However, this move is fraught with risk, forcing the CBN into a cautious “tightrope walk” where one misstep could either stifle economic recovery or trigger a damaging run on the naira.
The Monetary Policy Committee (MPC) made only a “very modest” 50-basis point cut in September, signalling its intent to ease but only very gradually.
“A clear policy position raised by the CBN in our meeting in early September was that they are unwilling to make decisions that may have to be reversed. This is also another reason that we expect them to continue to act cautiously, at least in the short term,” Citibank said in a recent report.
The pressure to ease monetary policy is clear. Inflation, which stood at 34.8 per cent in December 2024, had been reduced to 20.1 per cent by August 2025.
This downward trend provides the CBN with the justification to start cutting rates. Yet, excess liquidity in the economy could quickly spill over into a weakening of the naira.
This fear is compounded by the estimated $9 billion in portfolio investments that could exit the country as rates fall, putting pressure on the currency.
Read also: Think-tank backs CBN’s decision to ease monetary policy rate
Citibank’s report noted that CBN officials cited a “vulnerable” world economy and the potential for weaker global oil prices; the bank has adopted caution as its watchword.
Supply and demand trends potentially point to a weaker global oil price heading into 2026, which has important implications for naira dynamics and, to some extent, inflation dynamics in Nigeria.
“ Assuming we do have some oil price weakness in 2026, all these economic trends would point to some modest naira depreciation from current levels as we head into the first half of next year. We currently forecast the naira trading at levels of around N1650-1,700 per $1 at this time,” it said.
Although all of the above factors stand at a disadvantage for the naira, Citibank predicts that a weaker dollar and a higher foreign reserves position bode well for the currency.
“ At this point, we still forecast that the US dollar will remain broadly weak on global markets. While the CBN is continuing its recent policy of paying off the foreign exchange swops that it has on a net basis, which is leading to a steady improvement in its overall foreign exchange reserve position,” it said.
Adding to the complexity is the CBN’s unique approach to managing the cost of this tight policy. While government borrowing costs have already fallen significantly, reflecting fiscal discipline and lower inflation, the bank uses a blended-cost approach.
It balances the expense of issuing high-yielding Open Market Operation (OMO) bills (often in the 22-25 per cent range) against the zero-cost effect of a very high Cash Reserve Requirement (CRR) on bank deposits.
By averaging these costs, the overall burden of liquidity management appears “much less onerous,” giving the CBN more room to maintain its cautious posture without being forced into premature rate cuts.
