Experts have welcomed the recent interest rates cut by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), while calling for caution and transition to fiscal discipline.

They gave the caution while reacting to the recent interest rates cut by the CBN by 50 basis points from 27 per cent to 26.5 per cent.

Daily Trust reports that the CBN governor, Olayemi Cardoso while briefing the media on the outcome of the 304th MPC meeting stated that decision to cut rates was premised on the consecutive drop in inflation rates as well as improvement in food supply.

Speaking on the development, the Chief Executive Officer, Center for Promotion of Private Enterprise (CPPE) Dr. Muda Yusuf noted that weak transmission of monetary policy decisions have always been Nigeria’s problem.

“A major concern remains the weak transmission mechanism between monetary policy adjustments and actual lending rates in the real economy. Despite reductions in the MPR, lending rates to businesses remain elevated due to structural factors including High Cash Reserve Ratio (CRR), which constrains bank liquidity elevated cost of deposits, risk premiums reflecting macroeconomic uncertainty, crowding-out effects from government borrowing and High operating costs within the banking system.

“Unless these structural rigidities are addressed, the benefits of monetary easing may not fully translate into lower borrowing costs for manufacturers, SMEs, agriculture, and other productive sectors.

“Strengthening policy transmission should therefore be a priority. This may require complementary measures to ease liquidity constraints, improve credit-risk frameworks, and reduce distortions in government domestic borrowing patterns.

“Monetary easing must reach the real economy to deliver meaningful growth outcomes,” he explained.

Yusuf further stated that fiscal discipline had always remained the missing link.

“While monetary policy is moving in the right direction, fiscal vulnerabilities remain significant. Nigeria’s elevated public debt levels, persistent fiscal deficits, and ongoing budget financing challenges pose macroeconomic risks. Debt-service obligations continue to absorb a substantial portion of government revenues, limiting fiscal flexibility.

Therefore, sustainable macroeconomic stability requires stronger non-oil revenue mobilization, expenditure rationalization, improved fiscal transparency, credible deficit reduction strategy and reduced dependence on high-cost domestic borrowing

“Without fiscal consolidation, monetary easing could be undermined by continued fiscal pressures and crowding-out effects in the financial system. Policy coordination between fiscal and monetary authorities is therefore essential” he added.

Also speaking, a senior partner at SPM professionals, Dr. Paul Alaje stated that the reduction to 26.5 is expected because the Monetary Policy Committee is working on what it is called inflation targeting.

“NBS says that inflation has reduced to 15.1%. Even though we know that most of that reduction is driven by base effect, it’s actually not what they claim it is, in the real sense of it. But what we also know is that inflation is not as high as what it was at 36%. However, since we’re in a new era, and we are using a new, pre-arranged basket of commodities, we don’t know what inflation is.

“What we could do, therefore, is to look at it very critically, and none of those is giving. However, MPC is still very cautious with this kind of marginality, which I think they should. And I’ve also said that in the coming period, that’s the next MPC meeting, that we still have to be very cautious, and not have a sporadic reduction in rates, because that could send negative signals to foreign investors, some of which have now invested, we have seen that our reserve, we have 50 billion dollars, so we need to be very cautious not to, not to just adjust rates suddenly, which of course will have an implication,” he said

Alaje further warned that “if excess liquidity spending festers in the run up to the election, it will erode 75% of the economy,” adding, “But importantly, SMEs should seek progression in policy consistency.”

Also speaking Nigeria’s first professor of capital market, Prof. Uche Uwaleke stated that the 50 basis point cut is a cautious move by the MPC.

“Granted, inflation has been falling for eleven consecutive months. Headline inflation is down to 15.10%, food inflation has dropped sharply, and month-on-month inflation even turned negative. That is a very strong signal that prior tightening is working. Reserves are at a 13-year high, the exchange rate is relatively stable, and capital inflows are improving.

“So, the natural question is: if disinflation is sustained, why not cut more aggressively, say 100 basis points? The answer lies in risk management. It is important to state that monetary policy works with lags. Much of the disinflation we are seeing now is the delayed effect of earlier tightening. If the CBN eases too quickly, it could reverse those gains. Remember, inflation expectations in Nigeria are historically fragile. The CBN wants to consolidate credibility before accelerating easing,” he said

Speaking further, Prof Uwaleke added that “Also, let us look at the exchange rate dynamics. According to a recent newspaper report, the CBN recently mopped up about $190 million to slow naira appreciation. Usually, central banks intervene to defend a weakening currency. But in this instance, the CBN is buying dollars to prevent excessive appreciation.”

“That reveals two things: first there are strong inflows from oil earnings, remittances, and portfolio investors, and second the Bank is trying to avoid destabilizing the fixed-income market. If the naira appreciates too quickly, foreign investors who came in for high yields may exit, creating volatility. A sharp rate cut could trigger exactly that, an unwind of what is known as carry trades and renewed dollar demand.”

“So, in that context, 50 basis points is a signaling move. It balances three objectives: supporting growth as PMI at 55.7 points suggests expansion is ongoing, preserving exchange rate stability, and anchoring inflation expectations.

“Also, there is also a political economy dimension. The communique mentions potential election-related fiscal spending as an upside risk. If fiscal policy becomes expansionary, monetary policy may need to stay tighter for longer. A gradual easing cycle gives the CBN flexibility.

“From a banking sector perspective, the decision also aligns with the recapitalization exercise. Twenty banks have met new capital thresholds as disclosed by the CBN Governor. Stability is critical during such structural adjustments. A measured rate cut avoids introducing unnecessary volatility.

“I consider the 50 basis point cut as a signal. If disinflation continues for another two to three months and external conditions remain stable, we could see further gradual cuts. But the era of aggressive easing is unlikely unless inflation falls much faster or growth weakens sharply. So overall, I would describe the 50 basis point cut as prudent, credibility-building, and consistent with a central bank that wants to consolidate macroeconomic stability. It is a transition from tightening mode to calibrated easing mode, and that distinction is very important for market confidence,” he added.

What the CBN is saying

The Monetary Policy Committee of the Central Bank of Nigeria reduced the benchmark interest rate to 26.5% per cent.

This was the second time the MPC would be cutting rates under the current leadership of the apex bank.

The CBN Governor, Olayemi Cardoso, announced the decision on Tuesday at the end of the committee’s 304th meeting in Abuja.

Cardoso said, “The Committee decided to reduce the monetary policy rate by 50 basis points to 26.5%.”

He added that the MPC also resolved to “retain the Standing Facilities Corridor around the MPR at +50/-450 basis points” and to “retain the Cash Reserve Requirement for Deposit Money Banks at 45.00 per cent, Merchant Banks at 16.00 per cent, and 75.00 per cent for non-TSA public sector deposits.”

Cardoso said the decision was based on “a balanced evaluation of risks to the outlook,” which indicates that “the ongoing disinflation trajectory would continue, largely supported by the lagged transmission of previous monetary tightening, sustained exchange rate stability, and enhanced food supply.”

He noted that headline inflation eased to 15.10 per cent in January 2026 from 15.15 per cent in December 2025, marking the eleventh consecutive month of year-on-year decline.

According to the governor, “Food inflation declined markedly to 8.89 per cent from 10.84 per cent,” while “core inflation declined to 17.72 per cent from 18.63 per cent.”

Gross external reserves hit $50.4bn

Cardoso highlighted improvements in the external sector, stating that gross external reserves rose to $50.45bn as of February 16, 2026, “the highest in 13 years,” providing an import cover of 9.68 months for goods and services.

He said the accretion to reserves was supported by higher export earnings and increased remittance inflows, contributing to foreign exchange stability and investor confidence.

20 banks meet recapitalisation, 13 under financial intervention

On financial sector stability, Cardoso said most key financial soundness indicators remained within regulatory thresholds.

Of the 33 banks that have raised additional capital under the ongoing recapitalisation programme, 20 have met the new minimum capital requirement, reflecting what the committee described as “steady progress towards a more robust and well-capitalised financial system.”

He, however, stated that 13 are under regulatory intervention.

The MPC reiterated “the strategic importance of the recapitalisation exercise” and urged the Bank to ensure its successful completion to reinforce resilience and support sustainable growth.

On output, the Purchasing Managers’ Index stood at 55.7 points in January 2026, indicating continued expansion in economic activity and likely improvement in fourth-quarter 2025 output.

Looking ahead, Cardoso said the outlook suggests that “the current momentum of domestic disinflation will continue in the near term,” supported by exchange rate stability and improved food supply.

However, he warned that “increased fiscal releases, including election-related spending, could pose upside risk to the outlook.”

He reaffirmed MPC’s commitment to “an evidence-based policy framework, firmly anchored on the Bank’s core mandate of ensuring price stability, while safeguarding the soundness and resilience of the financial system.”