Tight financing conditions to rein in inflation and boost capital flows
Nigeria has maintained high interest rates for the last three years to address a severe cost-of-living crisis. The Central Bank of Nigeria (CBN) recently cut its benchmark rate by 50 basis points to 27% per annum in September 2025—the first reduction in five years.
Other changes include adjusting the asymmetric corridor around the policy rate to +/–250 basis points, cutting commercial banks’ cash reserve ratio to 45% from 50%, and introducing a 75% cash reserve ratio for public sector deposits.6 Inflation remains largely structural, driven by cost-push factors such as food insecurity and the exchange rate spillover effect on imported inflation. However, the CBN’s contractionary stance has partly helped limit money supply growth, boost capital inflows, and stabilize the naira.
Despite a projected inflation decrease, the CBN is expected to keep policy tight through 2025 to balance inflation control, financial stability, and address the risk of stunted growth and high operating costs. Anticipated fiscal pressures next year are also likely to prompt cautious monetary policy, leaving little room for further short-term interest rate cuts; at best, there might be modest cuts in 2026 and 2027.
Improved external position, but with pockets of volatility
Nigeria’s external position has improved, with gross external reserves exceeding US$42 billion in October 2025—the highest since September 2019—which is enough to cover around eight months of imports (figure 3).7 Several factors are driving this trend, like high interest rates, improved foreign exchange inflows, and a slight rise in domestic oil production. Investor confidence is also strengthening, as government reforms restore trust in Nigeria’s economic and policy environment. The naira has stabilized between 1,450 and 1,500 per US dollar through October 2025.
Barring major shocks to domestic oil production (averaging 1.39 million barrels per day,8 excluding condensates) and global oil prices, the naira is expected to remain stable through 2025. Increased refining will further strengthen net exports and enhance Nigeria’s current account. Year-end “Detty December” events will also likely draw higher US dollar inflows from nonresidents and foreigners.
However, renewed naira volatility is anticipated in 2026, driven by rising demand pressures and weaker investment flows as elections approach. Falling global oil prices pose an additional risk, with Brent prices projected to average US$58 per barrel in the last quarter of 2025 and around US$50 in early 2026.9 Consequently, the naira is forecast to weaken to an average of 1,650 per dollar in 2026 and 1,858 in 2027.10
