Nigeria's Monetary Policy Pivots: Assessing the Case for Rate Cuts in 2026

The Central Bank of Nigeria (CBN) has navigated a delicate balancing act in 2025, maintaining a high Monetary Policy Rate (MPR) of 27% despite a steady decline in inflation to 16.05% in October 2025. This cautious stance, aimed at anchoring inflation expectations and ensuring policy transmission, has provided a foundation for reevaluating monetary strategy in 2026. As global and domestic economic conditions evolve, the case for rate cuts in Nigeria is gaining traction, with strategic implications for asset allocation in emerging markets.

Disinflation and Policy Flexibility

Nigeria's inflation trajectory has been one of the most striking developments in its macroeconomic landscape. After peaking at 34.6% in November 2024, headline inflation eased to 16.05% by October 2025, driven by improved domestic food supply, stable exchange rates, and the lagged effects of monetary tightening. The CBN's decision to hold the MPR steady in November 2025, despite market expectations of a cut, underscores its commitment to ensuring disinflation is firmly entrenched. However, internal CBN models project continued moderation in inflation through 2026, supported by stronger domestic production and tighter liquidity management. This creates a policy window for rate cuts in 2026, provided inflation remains on a downward path.

Global Monetary Policy Alignment

Global monetary policy trends are increasingly supportive of easing cycles, with advanced economies like the U.S. and eurozone signaling potential rate cuts in 2026. The IMF's October 2025 World Economic Outlook notes that emerging markets are poised to benefit from lower global interest rates and a weaker U.S. dollar, which could enhance capital inflows and asset valuations. Nigeria's potential shift to a full inflation-targeting regime aligns with this global trajectory, emphasizing transparency and data-driven policy adjustments. Such alignment reduces the risk of policy divergence, which has historically strained emerging markets during global tightening cycles.

Strategic Asset Allocation in Emerging Markets

For investors, Nigeria's evolving policy environment presents opportunities and challenges. The CBN's reforms-ranging from foreign exchange market liberalization to fintech innovation-have bolstered investor confidence, with foreign capital inflows surging to $20.98 billion in 2025. This inflow, coupled with a rebound in non-oil exports and a $46.7 billion foreign exchange reserve buffer, positions Nigeria as an attractive destination for strategic capital.

Asset allocation strategies in 2026 are likely to prioritize sectors with growth resilience and attractive valuations. The manufacturing, real estate, and technology sectors, supported by Nigeria's 4.1% GDP growth forecast, offer compelling opportunities. Additionally, the CBN's focus on financial inclusion-evidenced by 12 million contactless payment cards in circulation and a regulatory sandbox for fintechs-highlights the potential for innovation-driven returns. Investors may also overweight dividend-paying equities in utilities and healthcare, sectors less sensitive to interest rate fluctuations.

Risks and Considerations

While the case for rate cuts in 2026 is strengthening, risks remain. Persistent inflation above 20% in 2025-2026, driven by currency depreciation and global trade tensions, could delay easing. Fiscal policy uncertainty, such as the November 2025 NGX All-Share Index correction, linked to a new capital gains tax, also highlights the need for policy clarity. Investors must balance these risks against the CBN's demonstrated commitment to fiscal discipline, including ending direct government financing and enhancing coordination with fiscal authorities.

Conclusion

Nigeria's monetary policy pivot in 2026 represents a critical juncture for emerging market investors. A well-calibrated rate-cut cycle, supported by disinflation and global easing trends, could unlock growth in sectors poised to benefit from structural reforms. However, success hinges on the CBN's ability to maintain credibility while navigating lingering inflationary pressures. For asset allocators, the key lies in aligning portfolios with Nigeria's transition to a more stable, predictable macroeconomic environment-one that rewards patience and strategic foresight.