CBN faces rate-cut calls amid stubborn inflation risks

By Chinwendu Obienyi

Pressure is mounting on the Central Bank of Nigeria (CBN) to resume monetary easing as businesses and households grapple with stubborn inflation, high borrowing costs and weak consumer demand ahead of the decision of the Monetary Policy Committee (MPC) meeting on Wednesday.

Although inflation remains elevated, a growing number of Nigerians now favour lower interest rates, arguing that tight monetary conditions are worsening economic hardship and constraining business activity.

Findings from the CBN’s April 2026 Inflation Expectations Survey which was released at the weekend showed that 63.3 per cent of respondents supported a reduction in interest rates, while 26 per cent preferred rates to remain unchanged and only 10.7 per cent advocated further tightening.

CBN survey sampled 3,587 respondents comprising 1,923 businesses and 1,664 households drawn from the NBS establishment frame and the National Population Commission’s enumeration areas.

The push for lower rates comes barely three months after the apex bank reduced the Monetary Policy Rate (MPR) by 50 basis points to 26.5 per cent from 27 per cent at its 304th MPC meeting in February. The rate cut marked the first major easing move after an extended cycle of aggressive monetary tightening aimed at curbing inflation and stabilising the naira.

At the time, the MPC cited improving macroeconomic indicators, relative exchange rate stability and easing inflationary pressures as reasons for the policy shift. But recent inflation data suggest that the battle against rising prices is far from over.

Data released by the National Bureau of Statistics (NBS) showed that headline inflation rose for the second consecutive month to 15.69 per cent year-on-year (y/y) in April 2026 from 15.40 per cent in March. The increase, it said, was driven mainly by renewed food price pressures, despite a moderation in month-on-month (m/m) inflation.

The latest figures underscore the difficult policy choices confronting the MPC as it attempts to balance growth concerns against persistent inflation risks.

While inflation remains significantly below the levels recorded a year earlier, households and businesses continue to face mounting cost pressures linked to energy prices, insecurity, logistics challenges and tight food supplies.

The CBN’s inflation expectations survey highlighted the severity of the burden on consumers and firms. According to the report, inflation expectations index stood at 40.5 points in April, indicating that although inflation is still perceived as high, respondents expect some moderation over the next six months. Perception of inflation worsened sharply during the period. About 67.2 per cent of respondents described inflation as high, compared to 56.4 per cent in March.

Among households, the share rose to 68.8 per cent from 61.7 per cent, while businesses reporting elevated inflation increased significantly to 65.9 per cent from 51.9 per cent.

Micro businesses recorded the highest inflation perception at 69.9 per cent, followed by large firms at 65.2 per cent, small firms at 64.6 per cent and medium-sized businesses at 63.2 per cent.

The survey also exposed widening income disparities in how inflation is experienced across households. Respondents earning below N70,000 monthly recorded the highest inflation perception at 77.9 per cent, compared with 46.6 per cent among households earning between N250,001 and N350,000.

Similarly, inflationary pressures appeared more severe in rural areas, where 70.4 per cent of households perceived inflation as high compared to 67.6 per cent in urban centres.

Respondents identified energy costs, transportation expenses, exchange rate volatility, insecurity and infrastructure deficits as the dominant drivers of inflation.

Although raw material costs, household purchases and middlemen activities were considered less significant contributors, economic experts argue that the persistence of elevated fuel and logistics costs continues to feed into broader consumer prices.

Experts’ reactions

Analysts at investment firms, Cordros Research and Cowry Research said the April inflation data reflected renewed food supply disruptions and sustained energy-related pressures.

According to them, food inflation accelerated to 16.06 per cent year-on-year in April from 14.31 per cent in March, largely due to tight supply conditions linked to the planting season and rising transportation costs.

Food prices remained elevated even though month-on-month food inflation moderated to 3.63 per cent from 4.12 per cent in March.

The analysts noted that farm produce prices rose sharply by 5.99 per cent month-on-month compared with 4.60 per cent in March, while imported food inflation climbed to 4.38 per cent from 1.12 per cent previously.

They attributed the pressure to constrained market supplies, insecurity in food-producing regions and the continued pass-through effect of high energy costs on transportation and logistics.

Core inflation, which excludes volatile agricultural produce and energy prices, slowed modestly to 15.86 per cent year-on-year from 16.21 per cent in March. On a month-on-month basis, the core index eased significantly to 1.03 per cent from 4.03 per cent previously, reflecting slower price increases across personal care, transportation, restaurants and accommodation services.

However, price pressures intensified in education, communication and recreation services, suggesting that inflationary pressures remain broad-based despite improvements in some categories. Co-founder, Comercio Partners, Nnamdi Nwizu, said that many businesses, especially manufacturers and small enterprises had faced high interest rates, thus compounding operational challenges.

“Borrowing costs remains elevated across the banking sector, limiting access to affordable credit and weakening investment appetite. Also, the manufacturers say that expensive financing has continued to squeeze profit margins at a time when consumers are already struggling with weak purchasing power”, Nwizu said.

Also speaking, the Chief Executive Officer, Financial Derivatives Company, Bismarck Rewane in a recent presentation at the Lagos Business School Breakfast session, projected that the MPC may likely to keep the status quo on the monetary policy rate (MPR), warning that the CBN could still raise the Cash Reserve Ratio (CRR) if money supply remains a concern.

According to Rewane, higher crude prices could boost government revenue and federal allocations which may put pressure on the CBN’s effort to contain inflation.

“Higher oil prices lifted FAAC distribution by 7.94 per cent in March to N2.04 trillion, with monthly disbursements likely to remain above N2 trillion if crude oil prices stay elevated amid ongoing geopolitical tensions.

We have seen inflation rise in April and so the MPC might likely leave rates unchanged while relying on liquidity management tools such as the Open Market Operations (OMO) CRR to absorb excess cash from the banking system. I think that the CBN is still looking at the global tensions and I think they need to pay attention to energy costs in the next few months”, he explained.

For analysts at Cordros Research, inflation risks remain too elevated for aggressive easing, especially given ongoing global and domestic uncertainties. Appearing to share the same sentiment with Rewane, the firm say they expect the Committee to maintain the MPR at current levels.

They noted that the major concern is the persistence of high global oil prices, which continue to exert pressure on domestic fuel and transportation costs.

Failed diplomatic efforts to end tensions in the Middle East, alongside lingering supply disruptions, the research and investment based firm, said, have kept Brent crude prices above the $100 per barrel mark for an extended period.

“So far in May, Brent crude has averaged about $105.89 per barrel, higher than the $101.43 average recorded in April.

Domestically, the impact has filtered into refined petroleum prices. For instance, Dangote Refinery’s gantry prices for Premium Motor Spirit (PMS) and diesel have remained elevated at about N1,275 and N1,680 per litre respectively, sustaining pressure on transportation, logistics and food distribution costs.

Hence, unless global crude prices decline meaningfully, energy costs could continue to undermine the pace of disinflation”, Cordros Research said.

Food supply conditions also remain fragile despite ongoing off-season harvests in parts of Northern Nigeria.

The onset of the planting season has further constrained fresh produce supply as farming activities shift toward cultivation rather than harvesting.

Persistent insecurity in key agricultural belts has equally disrupted farming activities and supply chains, limiting food availability in local markets.

Higher fertiliser prices, driven partly by elevated energy costs, are also raising production expenses for farmers.

These factors are expected to keep food inflation elevated in the near term, even if exchange rate pressures remain relatively contained.

Still, there are signs that the naira’s relative stability may help moderate imported inflation. The currency has averaged about N1,365.72/$ month-to-date (MTD) in May compared with N1,361.22/$1 in April, reducing the pace of imported cost pressures on foreign exchange-sensitive goods.

According to Cordros, the exchange rate stability reflects improved market confidence and sustained reforms in the foreign exchange market.

However, they caution that the positive impact of naira stability may be partly offset by persistent food and energy price pressures. Most analysts expect inflation to remain sticky in the near term.

Forecasts indicate headline inflation could rise further to about 16.22 per cent year-on-year in May, compared with 15.69 per cent in April.

Despite the inflation risks, expectations among businesses and households suggest cautious optimism that price pressures could moderate gradually over the next six months.

Among businesses, the proportion expecting inflation to rise declined from 52.2 per cent in the near term to 50.5 per cent over the next six months, while those anticipating lower inflation increased from 14 per cent to 24.6 per cent.

Households expressed similar sentiment, with the share expecting persistently high inflation falling from 65.7 per cent to 59 per cent over the same period.

Nevertheless, spending pressures remain intense.

According to the CBN survey, “About 67.9 per cent of respondents expect their expenditure to increase in the current month, with businesses slightly higher at 69 per cent compared to 66.7 per cent among households”. The survey also revealed growing public engagement with monetary policy communication.

About 92.1 per cent of respondents said they actively follow CBN updates on inflation and interest rate decisions. Similarly, businesses say they relied heavily on social media platforms for policy information, while households depended more on radio broadcasts and digital channels.

This then means Nigerians are starting to get involved with the country’s affairs much more than what it used to be in the past.

Conclusion

Cutting rates too quickly could reignite inflationary pressures and weaken investor confidence, especially if global oil prices remain elevated and food supply conditions deteriorate further.

Keeping rates high for too long, however, risks suppressing economic activity, worsening credit conditions and slowing recovery in key sectors of the economy.

For businesses and consumers already burdened by rising living costs and expensive borrowing, the outcome of the MPC meeting could shape economic expectations for the rest of the year.

Whether the central bank chooses to prioritise inflation control or economic stimulus, the decision is expected to send a strong signal about the direction of monetary policy in Africa’s largest economy.