Nigeria is bracing itself for a significant monetary policy pivot in 2026, with analysts at CardinalStone forecasting a 300 to 400 basis point (bps) cut in interest rates, given moderating inflation and a stabilising naira.
They noted in their 2026 macroeconomic outlook titled ‘Indicators Aligned for Sustained Macro Gains’ that the aggressive tightening cycle of recent years has begun to yield results.
“At the household level, pressure should continue to ease on consumer wallets as inflation is expected to fall below the long-run average and deep below the Central Bank of Nigeria’s inflation target.”
Broad money (M3) growth has also slowed to 10.2 percent, its lowest in four years, and the naira recorded its first annual appreciation in 13 years.
“We expect this dynamic to drive a 300-400 bps shave off in policy rate, which should have more impact on short-term yields, with those on medium to long-term fixed-income instruments likely to be influenced by a notably higher budget deficit,” said the Lagos-based research firm.
They also noted that any potential rate cut is linked to both domestic and external developments. While CardinalStone predicts a 300-400 bps reduction by year-end, moderating inflation early in the year eases the path toward monetary stability.
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A scheduled FTSE Russel review in March 2026 could result in an upgrade back to Frontier Market status for Nigeria, according to the report, which would improve liquidity and investor confidence. Depending on fiscal developments and market conditions, analysts expect further easing to follow in H2.
CardinalStone analysts expect the reduction in policy rates to have its greatest effect at the short end of the yield curve, while medium-to long-term yields may remain influenced by fiscal pressures, including a projected N15.7 trillion budget deficit.
Improved credit conditions and lower interest rates soften borrowing pressures for businesses, particularly in the real sector, which faced tight credit conditions in 2025 as corporations were forced to borrow at interest rates of about 30 percent.
Still, downside risks remain, even as optimism rises. “A weaker oil outlook is likely to weigh on fiscal revenues and could increase borrowing needs, potentially resulting in more debt accretion in 2026,” the report said, projecting crude to average $55 per barrel.
However, CardinalStone remains optimistic that moderating inflation, improved currency stability, and tighter monetary policy suggest macroeconomic conditions are aligning for sustained gains, setting the stage for a more growth-supportive interest rate environment in 2026.
“On balance, we think the risk-reward skew still leans positive.”