Middle East Crisis: CBN retains MPR at 26.5%, says Nigeria’s economy remains resilient

Stanley Ihedigbo

Central Bank of Nigeria (CBN) has retained the Monetary Policy Rate (MPR) at 26.5 per cent, as the Monetary Policy Committee (MPC) expressed concern over renewed hostilities in the Middle East and their potential impact on global energy prices, inflation and the Nigerian economy.

The decision was taken at the 306th meeting of the MPC, held on Monday and Tuesday, July 20 and 21, 2026, where 11 members of the Committee were in attendance.

At the meeting, the Committee also resolved to maintain the Standing Facilities Corridor around the MPR at +50/-450 basis points.

It equally retained the Cash Reserve Requirement (CRR) for Deposit Money Banks at 45 per cent, Merchant Banks at 16 per cent, and non-TSA public sector deposits at 75 per cent.

The CBN Governor, Olayemi Cardoso, who signed the statement issued at the end of the meeting, said the decision followed a comprehensive assessment of developments in the domestic and global economies and the balance of risks confronting the Nigerian economy.

According to the Committee, although headline inflation moderated marginally in June 2026, uncertainties in the global economy had increased, largely due to the renewed hostilities in the Middle East.

It said maintaining the current monetary policy stance would enable the monetary authorities to closely monitor emerging economic data and assess the direction of inflation before taking further policy decisions.

The MPC particularly expressed concern about the possible spillover effects of the Middle East conflict on global crude oil prices and the potential transmission of higher energy costs to domestic inflation.

Despite these concerns, the Committee noted that available economic indicators showed that the Nigerian economy had remained relatively resilient in the face of external shocks.

It attributed the resilience partly to the gains recorded from previous reforms implemented by the fiscal and monetary authorities.

The Committee also acknowledged the Federal Government’s renewed commitment to strengthening coordination between fiscal and monetary policies, noting that closer collaboration between both authorities had helped to moderate the impact of the Middle East crisis on the Nigerian economy.

The MPC said greater alignment between fiscal and monetary policies would further improve policy effectiveness and support the achievement of Nigeria’s broader macroeconomic objectives.

In its assessment of domestic price developments, the Committee noted that Nigeria’s headline inflation rate moderated marginally in June.

Headline inflation, measured year-on-year, declined to 15.91 per cent in June 2026, compared with 15.93 per cent in May, bringing an end to three consecutive months of increases in price levels.

The CBN said the marginal decline was driven by a reduction in the non-food component of inflation, which offset an increase in food inflation.

However, food inflation remained a major concern, rising to 17.52 per cent in June, from 16.96 per cent in May, as supply constraints continued to exert pressure on food prices.

On the other hand, core inflation moderated significantly to 15.92 per cent in June, compared with 16.82 per cent in May, a development the MPC attributed largely to improved exchange rate stability.

The 12-month average inflation rate also continued its downward trend, falling to 17.63 per cent in June, from 18.36 per cent in May.

The CBN said the development marked the sixth consecutive month of moderation in the 12-month average inflation rate and reflected a gradual slowdown in the pace of price increases over the medium term.

On a month-on-month basis, headline inflation also declined to 1.66 per cent in June, from 1.75 per cent in May, driven largely by a slowdown in core inflation.

The Committee also reviewed the performance of the Nigerian economy, noting that real Gross Domestic Product (GDP) expanded by 3.89 per cent in the first quarter of 2026, compared with 4.07 per cent in the preceding quarter.

The CBN said the growth was largely supported by the resilience of the non-oil sector, which expanded by 3.94 per cent during the period.

The non-oil sector’s performance was supported by improvements recorded in telecommunications, financial services, trade, transportation and other services subsectors.

However, the oil sector recorded slower growth during the period, with its GDP growth rate declining to 2.57 per cent in the first quarter of 2026, compared with 6.79 per cent in the fourth quarter of 2025.

The Committee attributed the slowdown in the oil sector largely to maintenance activities on oil facilities and installations.
Nevertheless, the MPC noted signs of improvement in economic activity, pointing to the rise in the country’s composite Purchasing Managers’ Index (PMI), which increased to 50.1 index points in June 2026, from 49.6 index points in May.

The CBN also reported a significant improvement in Nigeria’s external reserves, which rose to $52.52 billion as of July 17, 2026, from $50.47 billion at the end of May 2026.

The increase, according to the apex bank, was driven mainly by receipts from crude oil-related taxes and third-party inflows.
The current level of external reserves, the Committee noted, was sufficient to finance approximately 11 months of imports of goods and services, significantly exceeding the international benchmark of three months’ import cover.

The MPC also considered developments in the global economy, noting that global economic growth was projected to slow to 3.0 per cent in 2026, compared with 3.5 per cent in 2025.

The anticipated slowdown, it said, reflected the impact of heightened geopolitical tensions in the Middle East, uncertainties surrounding global trade policies and tight fiscal conditions.

The Committee warned that risks to global inflation remained tilted to the upside, driven mainly by rising crude oil and other commodity prices.

It further noted that supply chain disruptions and climate-related shocks affecting food production could worsen inflationary pressures across economies.

According to the MPC, exchange rate volatility and fiscal constraints also remained significant upside risks to inflation, particularly in emerging and developing economies.

In efforts to strengthen Nigeria’s macroeconomic fundamentals, the Committee underscored the potential benefits of Executive Order 9 and commended the Federal Government’s renewed efforts to increase crude oil production.

It also urged relevant government agencies to intensify the implementation of reforms aimed at unlocking the potential of other sectors of the economy, particularly solid minerals, to complement government revenues.

On the banking sector, the MPC welcomed what it described as the positive outcome of the banking sector recapitalisation exercise.

The Committee said the exercise had contributed to an improvement in the resilience of the banking system, as reflected in key prudential and financial soundness indicators.

However, it urged the CBN to sustain effective surveillance of the financial sector in order to preserve stability and mitigate potential risks to the banking system.

Looking ahead, the MPC projected that economic output would remain resilient in 2026, supported by improvements in crude oil production, expansion in the Purchasing Managers’ Index and the positive impact of recent policy reforms.

The Committee also projected further moderation in inflation over the medium term, citing continued stability in the foreign exchange market, the delayed impact of previous monetary policy tightening and expected improvements in food supply as the harvest season approaches.

However, it identified a severe and prolonged escalation of the Middle East conflict as the major risk to the economic outlook.

The Committee reaffirmed its commitment to preserving price stability and maintaining the soundness of Nigeria’s financial system.

It also said it remained prepared to take appropriate policy measures in response to changing macroeconomic conditions and emerging economic data.

The next meeting of the Monetary Policy Committee is scheduled for Monday, September 21, and Tuesday, September 22, 2026.