In a move that many would characterise as resolute, perhaps even defiant, Governor Olayemi Cardoso and the other members of the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) chose to look past the comfort of a seven-month disinflationary trend. Instead, they have ostensibly locked eyes with the looming risks of 2026. While the headline decision was a ‘Hold’, a deeper scrutiny of the Committee’s communiqué and the subsequent market reaction reveals a far more nuanced strategy. It appears the regulator is not fighting the battles of the last seven months; rather, it is fortifying the economy’s defences for the next twelve. With the 2026 budget presentation imminent and the subtle creep of election-cycle spending on the horizon, the decision to maintain a tight grip on monetary levers is, in our view, a calculated bid to anchor expectations before the fiscal waters become turbulent.

Hidden Stimulus: Is the Corridor Adjustment a Wolf in Sheep’s Clothing?

While the retention of the 27% MPR dominated the headlines, the true sophistication of the policy manoeuvre lay in the technical adjustments to the Asymmetric Corridor. The MPC adjusted the standing facilities corridor to +50/-450 basis points around the MPR, from +250/-250 basis points previously. To the casual observer, this may appear as arcane central banking semantics. However, to the banking sector, it represents a significant, albeit quiet, form of easing. Crucially, this widening of the floor, effectively reducing the rate at which the CBN accepts deposits from banks, will drastically lower the cost of liquidity management for the financial system. We estimate that this adjustment could save the banking sector billions in interest expenses that would otherwise have been paid to lenders parking excess cash at the CBN window.

This is a classic ‘carrot and stick’ approach: the CBN maintains the high headline rate to signal toughness to foreign investors, whilst simultaneously tweaking the plumbing. The massive liquidity already flooding the financial system – evidenced by the trillions of Naira sitting at the Standing Deposit Facility (SDF) window (reaching as high as ₦6.17 trillion on the week ended 14 November 2025) – was making the existing floor too costly. By widening the corridor and disincentivising the ‘lazy banking’ practice of leaving this liquidity with the regulator, the Apex Bank is subtly nudging capital towards the real sector, effectively lowering the marginal risk-free rate for banks even as the benchmark remains elevated. Further evidence of this technical easing is the shift from weekly to bi-weekly CRR debits after the September MPC meeting. While the headline CRR remains at 45%, this change significantly improves the short-term liquidity position of banks, offering them a crucial extra week to manage and deploy funds before sterilization at the CBN.

The Great Bifurcation: Market Reality versus Policy Posture

Post-MPC analysis unveils an acute bifurcation between official policy rates and actual market yields. The MPR stands firm at 27%, yet one-year Treasury Bill yields have declined markedly from 23.5% in November 2024 to 16.04% on 19 November 2025, resulting in an 11% spread. Furthermore, the gap between the MPR and Open Market Operations (OMO) rates (20.59% on 13 November 2025) has widened to approximately 600 basis points. This divergence suggests that the market has effectively ‘priced in’ the easing cycle well ahead of formal MPC endorsement. The financial system remains awash with liquidity, a situation that prompted the CBN’s corridor adjustment (discussed above) and is now driving down effective yields. For the real sector and manufacturers who have bemoaned the prohibitive cost of capital, this bifurcation offers a glimmer of hope. It implies that the transmission mechanism of monetary policy is already loosening financial conditions on the ground, regardless of the hawkish signalling from the CBN.

Figure 1: MPR (%) vs 365-Day T-Bills (%) vs OMO Bills (%)

Source: The CBN

The Fiscal Cliff: Exorcising the Ghost of Hyperinflation

Perhaps the most sobering aspect of our analysis is the warning regarding the ‘fiscal cliff’ of 2026. The refusal to cut rates is, in many ways, a defensive crouch against expected fiscal expansion. With the 2026 budget assumptions likely to be predicated on conservative oil prices but ambitious spending targets, the risk of ‘high-powered money’ entering the system is acute. The next twelve months represent a pre-election period, historically associated with a surge in government spending that is not necessarily matched by productivity gains – a textbook recipe for inflation. We believe that the CBN is effectively building a dam to contain the potential flood of election-related liquidity by not shifting ground on the MPR and the Cash Reserve Ratio (CRR) at 45%. There is a palpable fear that without this monetary tightrope, the absorptive capacity of the economy would be overwhelmed. The Governor’s focus on money supply saturation indicates an acute awareness that the battle against inflation is shifting from the supply side (food prices) to the demand side (fiscal liquidity). In addition, the banking recapitalisation, a long-term stability measure, which has seen circa ₦3 trillion raised as at late 2025, simultaneously poses a short-term inflationary risk due to the massive increase in lending capacity it unlocks. This risk provides a strong, structural justification for the CBN’s hawkish Hold of the MPR and the maintenance of the high CRR.

Figure 2: Gross External Reserves ($’ Billion)

Source: CBN

Outlook: The Prudence of the Long Game

Looking ahead to the first quarter of 2026, the narrative is one of cautious optimism tempered by vigilance. The CBN has signalled that it is waiting for the base effects of December 2024 to wear off and for the full impact of the “ongoing seasonal harvest” to further crush food prices before considering a pivot. In our opinion, a rate cut will likely only be considered in Q2 2026, after the impact of the 1 Jan 2026 tax changes are absorbed and if Core Inflation, which has declined to 18.7% in October from 22.76% in June 2025, drops significantly below the 17% mark. We believe that the November “Hold” should be read not as a passive stance but as a proactive guarantee that monetary conditions remain tight enough to contain structural vulnerabilities such as oil price volatility and fiscal dominance. This prudence lays a foundation for future monetary easing that will be safe, sustainable and substantive. For investors, the carry trade is alive and well. For corporates, the message is clear: the cost of capital will remain high, but the economy is growing fast enough to support it.