Nigeria’s central bank could deliver its largest interest-rate cut in more than a decade on Tuesday as declining yields on its primary liquidity instrument signal easing financial conditions, according to analysts at Goldman Sachs.
Yields on the Central Bank of Nigeria’s (CBN) Open Market Operations (OMO) bills — auctions used to manage liquidity and attract foreign portfolio inflows — have fallen sharply in recent months, effectively easing monetary conditions even before an official policy move. The Manhattan-based bank estimates that OMO yields have declined by about 150 basis points, a shift that historically precedes changes in the benchmark rate.
“These tend to lead moves in the policy rate,” Andrew Matheny, a senior economist at Goldman Sachs told Bloomberg, adding that a rate cut of a similar magnitude would be consistent with the drop in market yields.
Such a move would mark the most aggressive easing in more than 10 years and the second reduction in five.
Governor Olayemi Cardoso is scheduled to announce the Monetary Policy Committee’s decision later today in Abuja, with investors closely watching for signals that policymakers are shifting focus from inflation control toward supporting growth.
Improving macro backdrop anchors expectations
Expectations of policy easing are being reinforced by improving macroeconomic conditions, including moderating inflation, a strengthening currency, and rising foreign reserves.
Nigeria’s inflation rate eased to 15.1% in January from 15.2% a month earlier, extending a steady disinflation trend driven largely by slowing food prices. Notably, food inflation has returned to single-digit levels for the first time in a decade, offering much-needed relief to households and businesses.
The naira has also staged a recovery, gaining more than 6% since the start of the year after authorities granted bureaux de change operators access to the official foreign-exchange market.
The move boosted retail dollar liquidity and helped narrow the gap between official window and black market exchange rates. As of February 19, the currency traded at about ₦1,340 per dollar on the parallel market, its strongest level in nearly two years.
Foreign-exchange reserves have risen in tandem, reaching a more than 13-year high of $49 billion, strengthening the central bank’s ability to defend the currency and maintain external stability.
A rate cut would align Nigeria with a broader continental trend, as central banks from Zambia to the Democratic Republic of Congo begin easing policy in response to stabilising currencies and contained inflation.
Economists divided on pace of easing
Despite Goldman Sachs’ expectation of a large move, economists remain divided on how aggressively the central bank will act.
Analysts surveyed by Bloomberg expect a more measured approach. Of six economists polled, two forecast a modest 50-basis-point cut, while the remaining four expect a 100-basis-point reduction. Policymakers unexpectedly held rates at 27% at their previous meeting in November, suggesting a cautious stance despite improving conditions.
According to Ayodele Akinwunmi, chief economist at United Capital Plc, current macroeconomic trends support easing but warrant caution.
Those factors, combined with strong reserve buffers, give the MPC room for a “modest adjustment of 50 basis points,” he said, warning that aggressive easing could risk reigniting inflation pressures as money supply continues to expand.
Central bank officials have also flagged fiscal risks. Cardoso recently cautioned that increased government spending ahead of general elections scheduled for next year could inject excess liquidity into the financial system, potentially undermining recent progress on price stability.
For now, falling market yields and improving fundamentals suggest Nigeria is nearing a turning point in its monetary policy cycle — with the pace and scale of easing set to determine how durable the country’s fragile macroeconomic recovery proves.
