Businesses are yet to reap the benefits of Nigeria’s improving macroeconomic stability as borrowing costs remain stubbornly high despite signs that the Central Bank of Nigeria (CBN) is making progress in its fight against inflation.
The CBN’s decision to retain the Monetary Policy Rate (MPR) at 26.5 per cent at its July Monetary Policy Committee (MPC) meeting was widely expected and has reinforced expectations that businesses and households may have to wait longer for cheaper credit.
Explaining the decision, CBN Governor Olayemi Cardoso said the committee maintained the current policy stance after a “thorough assessment of the balance of risks,” citing renewed tensions in the Middle East, rising global uncertainty and the need to closely monitor the inflation outlook before taking further action.
Economists said the decision protects the gains made in moderating inflation, stabilising the naira and strengthening Nigeria’s external reserves.
However, they warn that keeping interest rates elevated for longer will continue to raise borrowing costs, slow private sector investment and delay the transmission of macroeconomic improvements to the real economy.
According to Cardoso, maintaining a cautious monetary policy stance remained the most appropriate option, noting that Nigeria had shown resilience to external shocks because of earlier fiscal and monetary reforms.
He believes that holding rates steady would give policymakers more time to assess incoming economic data before deciding on the next policy direction.
He also highlighted stronger coordination between the Federal Government and the CBN, saying the collaboration had helped cushion the domestic impact of the Middle East crisis while supporting broader macroeconomic stability.
The decision also came as Nigeria’s gross external reserves rose to $52.52 billion as of July 17, from $50.47 billion at the end of May, which Cardoso said is enough to finance about 11 months of imports of goods and services, far above the international benchmark of three months.
Inflation Is Easing, But the Real Battle Has Shifted
At first glance, the latest inflation figures support the CBN’s cautious optimism, easing marginally to 15.91 per cent in June from 15.93 per cent in May and remaining significantly lower than the 25.29 per cent recorded in June 2025.
But beneath the headline figure lies a different story. Food inflation accelerated during the month, continuing to squeeze household incomes and reminding policymakers that the country’s inflation problem has not disappeared.
Pinnacle Daily reported that a renowned economist, Dr Muda Yusuf, believes the latest figures show that monetary tightening alone cannot solve Nigeria’s inflation challenge.
“The June 2026 inflation report points to a broad stabilisation of headline inflation but also reveals a renewed escalation of food prices. While macroeconomic stability is gradually being consolidated, structural inflationary pressures within the real economy remain pronounced,” said Yusuf.
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He argued that the renewed rise in food prices was particularly worrying because it remained the biggest driver of the cost-of-living crisis.
According to Yusuf, “the renewed increase in food inflation reflects persistent supply-side constraints, including insecurity, high transportation and logistics costs, elevated energy prices, rising fertiliser costs, supply chain disruptions and imported inflation linked to recent geopolitical developments.”
His assessment reinforces a growing view among economists that Nigeria’s inflation is becoming more structural than monetary, meaning high interest rates alone cannot bring prices down quickly.
That partly explains why the MPC opted to hold rates instead of raising them further, Victor Oboh, Director of Monetary Policy at the CBN, said.
He argued that the MPC deliberately chose caution because the latest inflation risks were largely driven by external supply shocks rather than excessive domestic demand.
“The biggest issue before the MPC was the renewed Middle East crisis and its impact on global energy prices. Because Nigeria is highly import-dependent, the pass-through to our economy is significant, so the committee felt it was not appropriate to raise interest rates,” Oboh said.
He said the committee also wanted more time for previous monetary tightening to work through the economy before considering another policy move.
“We believe holding the MPR at 26.5 per cent will allow the impact of earlier tightening to continue moderating inflation. We also expect food prices to ease as the harvest season begins, while collaboration with the fiscal authorities should help address supply-side bottlenecks,” Oboh added.
Businesses Still Waiting for Cheaper Credit
While inflation appears to be moving in the right direction, businesses are yet to enjoy one of the biggest benefits they had hoped for—lower borrowing costs.
For manufacturers, small businesses and investors, the latest MPC decision means lending rates are likely to remain elevated for longer.
Economist Ayo Teriba, however, had questioned whether the current policy rate still reflects conditions in the financial market.
“The question the central bank should be answering is not whether to tighten further. Treasury bills and open market operation rates are already between 17 and 20 per cent, so why keep the monetary policy rate at 26.5 per cent?” he said.
According to Teriba, the wide gap between the benchmark rate and market rates suggests the current policy stance is no longer aligned with market realities.
“The foreign exchange crisis that justified these tight measures has largely been resolved. Net foreign reserves have improved significantly, so the central bank should explain why it is still maintaining such a restrictive policy regime,” he added.
On his part, economist Paul Alaje backed the MPC’s decision, saying keeping rates unchanged helped avoid creating fresh uncertainty in the economy.
“The decision is very significant because it prevents unnecessary shocks in the market. By neither increasing nor reducing the rate, the MPC has given the economy room to absorb external pressures while preserving the gains already made,” he said.
Alaje noted that inflation has continued to trend lower while the naira has remained relatively stable over the past year, giving policymakers confidence to stay on their current path.
“We expect inflation to moderate further unless there are external shocks beyond Nigeria’s control. The important thing now is to protect the progress already achieved and ensure it is not undermined by future uncertainties, including political activities,” he said.
The latest MPC decision therefore reflects a difficult balancing act as the CBN believes it is gradually winning the fight against inflation and preserving macroeconomic stability, but it is not yet prepared to declare victory.
For businesses, however, the wait continues, as the experts believe that until inflation falls more convincingly and supply-side pressures ease, borrowing costs are likely to remain high, leaving the real economy to bear the cost of the CBN’s cautious approach.
Alex is a business journalist cum data enthusiast with the Pinnacle Daily. He can be reached via ealex@thepinnacleng.com, @ehime_alex on X