IMF Backs CBN’s Policy Shift, Cardoso Says FX Crisis Forced Nigeria to Diversify Inflows

Nigeria’s Central Bank shifted toward a somewhat less restrictive monetary stance. It cut the Monetary Policy Rate from 26.5 per cent to 23 per cent in September 2026. The purpose was to reduce the real interest rate and improve monetary policy transmission as inflation declined.

The IMF viewed this as normalisation, not broad easing. Zeine Zeidane said Nigeria’s progress in reducing inflation created room for the adjustment. Lower rates can make financial conditions less restrictive, but the overall policy stance can remain tight when borrowing costs are still high compared with inflation.

The move surprised market analysts, yet the IMF considered it suitable. Nigeria’s improved external conditions, higher oil prices, stronger foreign-exchange receipts and rising reserves supported the decision. The central bank must still monitor inflation, currency conditions and whether rate changes reach households and businesses.

The Monetary Policy Rate is the benchmark interest rate set by a central bank. It guides other interest rates across the economy. The real interest rate is the nominal interest rate after accounting for inflation, often described roughly as the interest rate minus inflation. It shows the true cost of borrowing in purchasing-power terms.

When the MPR rises, banks usually face stronger incentives to charge more for loans. Higher borrowing costs can discourage business investment, household purchases and spending. When the MPR falls, loans may become less expensive, encouraging activity. The effect depends on how well policy changes pass through to banks and borrowers.

Nigeria’s CBN cut the MPR from 26.5 per cent to 23 per cent because inflation had improved and transmission needed strengthening. The IMF said this lowered the real interest rate without making policy broadly accommodative. Thus, borrowing conditions may ease somewhat while monetary restraint remains.

The September 2026 rate cut was 350 basis points. A basis point equals one-hundredth of a percentage point, so 350 basis points equals 3.5 percentage points. This made the decision substantially larger than a minor adjustment and surprised market analysts.

Before the decision, Nigeria’s Monetary Policy Rate stood at 26.5 per cent. The Central Bank of Nigeria’s Monetary Policy Committee reduced it to 23 per cent. The change lowered the benchmark used to guide monetary conditions and other interest rates in the economy.

The IMF supported the move because inflation had fallen and monetary policy transmission needed improvement. However, it stressed that the policy stance remained tight. The cut therefore represented a degree of normalisation, not a full turn toward cheap money or broad-based monetary easing.

Cutting the MPR changes one important policy signal, but it does not instantly relax every financial condition. Banks may still charge high lending rates, credit may remain difficult to obtain, and inflation may continue making borrowing expensive in real terms. Policy transmission can also be weak or delayed.

Nigeria’s CBN reduced the MPR by 350 basis points, from 26.5 per cent to 23 per cent. The IMF described this as normalisation designed to lower the real interest rate and address weaknesses in transmission. It did not describe the move as a shift to an accommodative stance.

That distinction matters for economic management. The IMF said inflation had improved enough to permit the adjustment, while the overall stance stayed tight. Nigeria therefore gained some room to support activity without abandoning restraint against renewed inflation or financial instability.

Nigeria’s foreign-exchange crisis was severe enough to force a search for inflows beyond oil. Net foreign reserves fell to about $3 billion, while outstanding foreign-exchange backlogs exceeded $7 billion. The backlog represented obligations still awaiting settlement, adding pressure to an already limited supply of foreign currency.

These figures reveal a major mismatch between demand for dollars and immediately available reserves. Very low net reserves reduce the authorities’ room to support markets or meet external obligations. Large unpaid backlogs signal that the shortage affected businesses and other participants waiting for foreign currency.

The crisis also exposed the risk of relying too heavily on one export source. Later, higher oil prices and increased foreign-exchange receipts helped strengthen reserves and improve liquidity. The broader lesson was that Nigeria needed more diverse inflows and reforms that could improve confidence and external resilience.

Oil was no longer enough to meet Nigeria’s foreign-exchange needs during the crisis. Net reserves fell to about $3 billion, while outstanding forex backlogs exceeded $7 billion. The shortage forced policymakers to seek additional inflows that could improve liquidity and reduce dependence on a single source.

Possible alternatives include non-oil goods exports, services such as technology and tourism, remittances from citizens abroad, foreign direct investment and portfolio investment. Countries can also use external borrowing, although borrowing creates repayment obligations. These examples are general sources of foreign exchange; the article specifically reports only that Nigeria looked beyond oil.

The need for diversification remains important even when oil conditions improve. The IMF said higher oil prices and increased forex receipts had strengthened reserves and liquidity. However, it also urged structural reforms, stronger domestic revenue mobilisation and a better business environment to attract private investment.

These factors form a connected chain. Higher oil prices can raise export earnings and foreign-exchange receipts for an oil-producing country. More receipts can strengthen reserves and increase liquidity. Stronger reserves can support confidence in the currency, while better external conditions can improve growth prospects.

Inflation changes the central bank’s room to act. When inflation declines, the bank may lower interest rates without making real borrowing conditions excessively loose. Lower rates can support spending and investment, but if inflation rises again or foreign-exchange supply weakens, the currency and economy may face renewed pressure. The article stresses these links without claiming a fixed outcome.

Nigeria illustrates the interaction. The IMF cited higher oil prices, improved receipts, stronger reserves and more liquidity. It also supported the CBN’s rate cut after inflation fell. Growth was forecast at 4.2 per cent in 2026 and 4.3 per cent in 2027, but reforms remained necessary.