CBN Cuts Rates to 26.5% as Nigeria's Economic Recovery Bypasses Households
Nigeria's central bank reduced its benchmark interest rate by 25 basis points to 26.5%, marking the first monetary easing in nearly two years, even as Dangote Cement reported profits doubled to N1 trillion amid persistent consumer hardship.
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The Central Bank of Nigeria (CBN) reduced its monetary policy rate to 26.5% from 26.75%, signaling what Governor Olayemi Cardoso described as a "cautious shift" in economic policy direction after 18 consecutive months of aggressive tightening. The 25-basis-point cut, announced by the Monetary Policy Committee, represents the first rate reduction since the CBN began its inflation-fighting campaign in early 2024.
According to The Nation Newspaper, the rate adjustment comes "at critical moments in a nation's economic journey" when policy recalibration can indicate broader directional changes. The CBN's decision follows moderation in headline inflation, which declined to 24.8% year-on-year in January 2026 from a peak of 34.6% in November 2024, though food inflation remains elevated at 28.3%.
The monetary easing coincides with robust corporate earnings in [REDACTED_SQL] billion in 2024, Premium Times reported. The cement manufacturer's EBITDA margin expanded to 46%, driven primarily by price increases that offset volume declines in a weakened consumer environment.
"EBITDA margin, a profitability metric that measures a company's core profit, stood at 46 per cent," Premium Times noted, highlighting the company's pricing power despite macroeconomic headwinds. Dangote Cement implemented multiple price adjustments throughout 2025, with per-tonne prices rising from approximately N5,200 in January 2025 to N7,800 by December, representing a 50% increase that outpaced official inflation figures.
However, the disconnect between positive macroeconomic indicators and household welfare has widened. Business Day reported that many Nigerians continue to "reel under stagnant income, low purchasing power" despite GDP growth accelerating to 3.8% in Q4 2025 and foreign exchange reserves climbing to $38.2 billion. Real wage growth remains negative, with the national minimum wage of N70,000 ($43 at current exchange rates) purchasing significantly less than when it was implemented in July 2025.
The purchasing power erosion stems from multiple factors. While headline inflation has moderated, cumulative price increases since the naira devaluation in June 2023 have exceeded 85% for essential goods. Transportation costs remain 120% above pre-devaluation levels, and electricity tariffs for Band A consumers increased 250% in April 2025. These structural cost pressures persist despite the naira stabilizing around N1,650 per dollar after depreciating from N460 in May 2023.
Commercial banks have benefited from the high-rate environment, with the five largest institutions reporting combined pre-tax profits of N3.2 trillion for 2025, up 42% year-on-year. Net interest margins expanded as banks repriced loan portfolios while deposit rates lagged, widening the spread to an average 14.8 percentage points. However, credit to the real economy contracted 6.3% in real terms as businesses struggled with borrowing costs exceeding 30% for prime corporate clients.
The CBN's rate cut, though modest, may signal recognition that monetary tightening has reached diminishing returns. Credit to the private sector as a percentage of GDP declined to 22.1% in December 2025 from 25.8% a year earlier, constraining productive investment. Manufacturing capacity utilization fell to 52.4% in Q4 2025, the lowest level since 2020, according to the Manufacturers Association of Nigeria.
Capital market participants responded cautiously to the rate decision. The Nigerian Stock Exchange All-Share Index declined 1.8% in the two trading sessions following the announcement, as investors recalibrated fixed-income portfolios. Yields on 364-day Treasury bills fell 35 basis points to 22.45%, while the 10-year government bond yield compressed to 19.8% from 20.2%.
Analysts project the CBN may implement additional 25-50 basis point cuts in H1 2026 if inflation continues its downward trajectory. However, fiscal pressures remain substantial, with the federal government's debt service consuming 68% of retained revenue in 2025. The 2026 budget assumes oil production of 2.06 million barrels per day and an exchange rate of N1,400 per dollar, both targets that appear increasingly optimistic given current trends.
The policy challenge centers on translating macro stability into microeconomic relief. While forex liquidity has improved and inflation expectations have moderated, household consumption—which accounts for 78% of GDP—remains constrained by eroded purchasing power and elevated unemployment estimated at 33.3% when underemployment is included. Without meaningful wage adjustments or targeted fiscal interventions, the benefits of monetary normalization may continue to bypass the majority of Nigerians.