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The International Monetary Fund has backed the Central Bank of Nigeria’s decision to cut its benchmark interest rate to 23 per cent, citing progress in reducing inflation.
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The IMF says monetary policy remains restrictive despite the 350-basis-point reduction from 26.5 per cent in September.
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The Fund warns that further rate cuts must depend on inflation trends and economic data, noting that additional monetary tightening may still be necessary in some African economies.
October 16, (THEWILL) – The International Monetary Fund has backed the Central Bank of Nigeria’s decision to reduce its benchmark interest rate to 23 per cent, while warning that premature monetary easing could undermine progress in controlling inflation.
Director of the IMF’s African Department, Zeine Ould Zeidane, said Nigeria had made significant progress in reducing inflation following a period of elevated price pressures and high real interest rates.
Speaking at a press briefing during the ongoing IMF-World Bank Annual Meetings in Thailand, Zeidane said the September rate reduction was justified by the improvement in inflation, but did not represent a shift towards an accommodative monetary policy.
“The stance itself remains a tight one,” he said, describing the CBN’s decision as appropriate under prevailing economic conditions.
He stressed that monetary policy decisions should continue to be guided by incoming economic data, with the priority remaining the reduction of inflation towards the central bank’s target.
The IMF’s endorsement offers international backing for the CBN’s decision to begin lowering borrowing costs after an extended period of monetary tightening.
However, the Fund’s caution underscores the need to ensure that the decline in inflation is sustained before further reductions are considered.
CBN cuts benchmark rate by 350 basis points
At its September Monetary Policy Committee meeting, the CBN reduced the Monetary Policy Rate by 350 basis points, from 26.5 percent to 23 percent.
The decision surprised many market participants who had expected the committee to retain the benchmark rate amid concerns about inflation and price stability.
The MPC also recalibrated the Standing Facilities Corridor while retaining existing Cash Reserve Requirement levels for deposit money banks, merchant banks and non-Treasury Single Account public sector deposits.
The rate cut marked a shift after an extended period of tight monetary policy intended to contain inflation and support macroeconomic stability.
Nigeria’s headline inflation rate had eased to 15.39 per cent in August 2026 from 15.43 per cent in July, according to the National Bureau of Statistics.
The decline extended the disinflation trend for a third consecutive month, although the relatively small monthly movement highlighted the challenges facing policymakers.
The September inflation report subsequently showed a further decline in headline inflation to 14.63 percent, from 15.39 percent in August.
Month-on-month headline inflation also slowed to 0.06 percent from 0.71 percent.
These figures provide additional evidence of easing price pressures, although the increase in monthly core inflation to 1.11 percent in September from -0.06 percent in August suggests that inflationary pressures remain uneven across the economy.
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IMF urges caution over further easing
While supporting Nigeria’s latest rate adjustment, the IMF warned that central banks must remain vigilant against renewed inflationary pressures.
The Fund’s latest regional assessment indicated that further monetary tightening could still be necessary in several African economies, adopting a firmer position than its April assessment.
For Nigeria, the implication is that the September reduction should not be interpreted as a commitment to a sustained cycle of rate cuts.
Further adjustments will depend on whether inflation continues to moderate and whether the gains achieved so far can be maintained.
A reduction in the benchmark rate can lower borrowing costs across parts of the economy, potentially supporting business investment, consumer spending and economic activity.
However, easing monetary policy too quickly could weaken the fight against inflation if price pressures return.
An Abuja-based economist, Nonso Iheoma, said the CBN would need to balance the benefits of lower borrowing costs against the risk of renewed inflation.
He said further adjustments should be supported by sustained improvements in inflation and broader economic conditions.
The IMF’s position therefore points to a measured approach: Nigeria can begin normalising interest rates as inflation moderates, but monetary policy must remain sufficiently restrictive to prevent a reversal of the progress recorded.
Ogochukwu Onwaeze is a writer specializing in business and economic journalism. At THEWILL News Media, she translates market trends, financial developments, and policy shifts into clear and engaging stories.
