IMF Backs CBN's 350bps Rate Cut, Says Monetary Stance Still Tight

The International Monetary Fund (IMF) on Thursday endorsed the Central Bank of Nigeria's 350 basis-point interest rate cut as "the right thing to do", while stressing that monetary conditions in Nigeria remain tight and that disinflation is not yet complete. The Fund's assessment came at a press briefing on its Regional Economic Outlook for Sub-Saharan Africa, held at the IMF-World Bank Annual Meetings in Bangkok, Thailand.

Zeine Zeidane, director of the IMF's African Department, said the September 22 decision to reset the monetary policy rate to 23 per cent from 26.5 per cent was a normalisation of an unusually high real interest rate rather than the start of an easing cycle. "In the case of Nigeria, they have made significant progress towards lowering inflation because it has been coming from a high level, and they had a high real interest rate. So, they decided to normalise the monetary policy to lower that real interest rate, which is appropriate in our view. It's the right thing to do," Zeidane said. "And it's not easing yet because the stance itself remains a tight stance."

A rate cut the market did not see coming

The MPC's decision, taken at its 307th meeting and approved unanimously, was the largest single reduction in the policy rate in the bank's history and followed a 50 basis-point cut in February and two consecutive holds in May and July. Economists had widely expected another hold, given persistent food and energy price risks stemming from the war in the Middle East.

Dan Katz, the IMF's first deputy managing director, told a panel session with CBN Governor Olayemi Cardoso that the way markets absorbed the surprise pointed to credibility built through communication. "I think the market's digestion of the most recent decision is a testament to the degree of clarity and credibility you've built up in your communications," Katz said. Cardoso acknowledged the size of the move, noting that "it took the market by surprise, and markets, as we know, generally don't like surprises", and attributed the smooth transmission to better coordination between fiscal and monetary authorities and greater transparency in rate determination.

The CBN also recalibrated the standing facilities corridor to +50/-300 basis points around the new policy rate while holding the cash reserve requirement for deposit money banks at 45 per cent and at 16 per cent for merchant banks, keeping a separate, tighter tool in place for liquidity management.

Disinflation is real, but the stance has not turned

Zeidane's qualification that Nigeria is "not easing yet" matters for borrowers and investors pricing the next MPC meetings. The benchmark rate sits at 23 per cent even as headline inflation slipped to 14.63 per cent in September, from 15.39 per cent in August, leaving a positive real policy rate of roughly eight percentage points. The IMF's position is that the cut reduced an excessive real burden without loosening financial conditions in any conventional sense.

The fund also upgraded its forecast for Nigeria's economic growth in 2026 to 4.2 per cent, from 4.0 per cent previously, with a similar 4.3 per cent projected for 2027. Montfort Mlachila, deputy director of the African Department, attributed the revision to improved oil prices, which have raised foreign exchange receipts and reserves, alongside greater domestic liquidity. "Growth in the economy is mostly driven by services," Mlachila said, adding that the decline in inflation since 2025 has improved the overall macroeconomic situation and the availability of foreign exchange.

What the IMF wants Nigeria to do next

The Fund paired its endorsement with a clear caveat on fiscal and structural policy. Zeidane urged the government to "mobilise more domestic revenue outside the oil sector to create fiscal space for education, health infrastructure" while continuing structural reforms on governance, the business environment and regional integration to attract private investment and jobs. He warned against relying on oil revenues to finance development, a point reinforced by the government's own pitch for $78.5 billion of private capital across 65 projects at the meetings this week.

On subsidy reform, Zeidane repeated the IMF's standard advice that broad energy subsidies disproportionately benefit wealthier households, and that the appropriate path is phased withdrawal with savings redirected to targeted support. "It's better to support people who need support than supporting products," he said, noting that the fund builds social spending targets into its programmes rather than treating protection of the vulnerable as specific to Nigeria.

For now, the practical read-through is that the IMF sees the CBN's September move as credible but non-directional. The next test comes when the MPC meets again with a fourth month of falling inflation in hand, and with the fund's own view that the stance should stay restrictive until price stability is firmly established.