Nigeria’s CBN Raises Interest Rate to 28% Amid Inflation Surge, Governor Olayemi Cardoso Cites Naira Volatility

Nigeria’s Central Bank raised its benchmark interest rate to 28% on Tuesday in Abuja, reversing a previous cut earlier this year. Governor Olayemi Cardoso said the hike was aimed at addressing rising inflation and volatility in the naira exchange rate.

The decision followed a unanimous vote by MPC members, with Governor Olayemi Cardoso stating the move was necessary to address persistent inflationary pressures and the volatility of the naira exchange rate.

The Central Bank of Nigeria’s Monetary Policy Committee (MPC) announced the increase in the Monetary Policy Rate (MPR) to 28% at the conclusion of its 304th meeting in Abuja on Tuesday, reversing a series of rate cuts earlier this year.

This hike comes after the MPC had trimmed the MPR to 26.5% in February 2026, marking the lowest level since May 2024, when the rate stood at 27.5%. The February reduction was aimed at consolidating a downward trend in headline inflation, which had fallen to 15.10% in that same month—the 11th consecutive month of year-on-year inflation decline, according to official statistics. Inflation averaged 21.03% year-to-date in 2026, compared with 33.03% over the same period in 2024, though a slight uptick was recorded in March.

Despite these gains, Cardoso highlighted ongoing risks to inflation stemming from increased fiscal spending, particularly related to upcoming elections. The governor expressed cautious optimism about further easing inflation, supported by improved food supply and relative stability in the exchange rate. However, he emphasized the need for a balanced approach given the uncertain economic environment.

The MPC’s earlier rate adjustments since November 2024 aimed to stabilize the naira and curb inflation. The MPR had been increased progressively from 18.75% in July 2023 to a peak of 27.5% in May 2025. This sequence of hikes was intended to counter inflationary pressures and support the naira’s position in the foreign exchange market. The rate was briefly cut by 50 basis points to 27% in September 2025—the first reduction since September 2020—following signs of slowing inflation and a strengthening local currency. The rate was held steady at 27% in November 2025 before the February 2026 cut to 26.5%.

Alongside the MPR adjustments, the MPC maintained the Cash Reserve Ratio (CRR) at 45% for Deposit Money Banks, 16% for merchant banks, and 75% for Non-Treasury Single Account public deposits, according to official records. These parameters have remained unchanged throughout recent policy meetings.

The inflation slowdown has been supported by improved macroeconomic conditions, including a more stable exchange rate and adjustments in Treasury bill rates. However, month-on-month inflation showed signs of acceleration in November 2025, rising to 1.22% from 0.93% in October, driven mainly by a 1.08% increase in the energy index due to higher fuel and cooking gas prices.

Liquidity in the banking sector has also been affected by policy changes and economic factors. Data show that banks’ borrowing from the Central Bank fell by 28.2% year-on-year to 2.9 trillion naira in August 2025, down from 4.04 trillion naira the previous year. This decline coincided with a significant increase in bank deposits with the CBN, which rose to 95.5 trillion naira in the first eight months of 2025, up 417% from 18.5 trillion naira in the same period in 2024. The rise in deposits reflects excess liquidity driven by increased Federation Account Allocation Committee disbursements and broad money supply growth.

The Standing Lending Facility rate remains set at 500 basis points above the MPR, with banks utilizing the Standing Deposit Facility for managing excess cash. The recent rate cut to 26.5% was intended to lower borrowing costs and support economic growth amid moderating inflation, according to Central Bank sources.

Looking ahead, projections from the Central Bank suggest that the MPR could trend downward to 24.5% in 2027 and 23% in 2028, contingent on inflation and macroeconomic developments. The MPC’s decisions continue to balance the objectives of price stability, exchange rate management, and economic growth within a challenging fiscal and external environment.