CBN Retains Interest Rate at 26.5% as Middle East Tensions Heighten Inflation Risks

CBN Retains Interest Rate at 26.5 per cent as the Central Bank of Nigeria (CBN) opted to maintain its tight monetary policy stance amid rising geopolitical tensions in the Middle East, persistent food inflation and uncertainties in the global economy.

The decision was announced at the conclusion of the 306th meeting of the Monetary Policy Committee (MPC), held on July 20 and 21, 2026, where all 11 members voted to maintain the current monetary policy stance. The committee also retained the Standing Facilities Corridor at +50/-450 basis points around the MPR and left the Cash Reserve Ratio (CRR) unchanged for banks.

The MPC said its decision reflected a careful assessment of risks to the inflation outlook, noting that while domestic price pressures have shown signs of moderation, global uncertainties remain elevated.

According to the committee, renewed tensions in the Middle East could trigger higher energy prices and increase imported inflationary pressures on economies worldwide, including Nigeria.

Nigeria’s headline inflation rate eased marginally to 15.91 per cent in June 2026 from 15.93 per cent in May, ending three consecutive months of increases. However, food inflation climbed to 17.52 per cent from 16.96 per cent during the period, underscoring ongoing supply-side challenges in the economy.

The MPC noted that the decline in headline inflation was largely driven by a moderation in core inflation, which fell to 15.92 per cent in June from 16.82 per cent in May, supported by relative stability in the foreign exchange market.

The committee observed that maintaining the current policy stance would provide room to monitor incoming economic data and assess the trajectory of inflation before making further adjustments to monetary policy.

The committee stated that the Nigerian economy has remained largely resilient despite external shocks, attributing the performance to ongoing fiscal and monetary reforms.

The MPC also welcomed improved collaboration between the Federal Government and the monetary authority, saying stronger policy coordination would enhance policy effectiveness and support broader macroeconomic objectives.

Data reviewed by the committee showed that Nigeria’s economy expanded by 3.89 per cent in the first quarter of 2026, driven primarily by growth in the non-oil sector, including telecommunications, financial services, trade and transportation.

The committee further noted that the country’s gross external reserves rose to $52.52 billion as of July 17, 2026, from $50.47 billion at the end of May, providing import cover for approximately 11 months.

Despite the positive indicators, the MPC warned that the escalation of conflict in the Middle East remains the most significant risk to Nigeria’s inflation outlook.

The committee said rising crude oil prices, supply chain disruptions, exchange rate volatility and climate-related shocks could intensify inflationary pressures globally and in emerging economies.

Looking ahead, the MPC projected that inflation would continue to moderate over the medium term, supported by exchange rate stability, the lagged effects of previous monetary tightening measures and improved food supply conditions during the harvest season.

However, it reaffirmed its readiness to take appropriate policy actions should macroeconomic conditions deteriorate.