Standard Chartered projects CBN monetary policy rate at 25% by end of 2026 as inflation persists

Standard Chartered expects the Central Bank of Nigeria to cut interest rates by only 150 basis points throughout 2026, forecasting the monetary policy rate will finish the year at 25 percent. The projection signals a slower easing cycle than markets previously anticipated, with persistent inflation constraining the apex bank's policy flexibility.

Standard Chartered Plc forecasts the Central Bank of Nigeria will reduce the monetary policy rate to 25 percent by December 2026, trimming borrowing costs by just 150 basis points over the full year. The projection underscores how stubborn inflationary pressures are forcing the CBN to adopt a more gradual approach to monetary easing than financial markets had anticipated earlier this year.

The bank's forecast assumes the CBN maintains its cautious stance on rate cuts despite growing calls from the private sector for faster monetary loosening. At the November 2024 monetary policy meeting, the CBN held rates steady at 27.25 percent, signalling it will not rush to ease policy despite cooling headline inflation. Standard Chartered's 150 basis point reduction would represent a measured unwinding of the aggressive hiking cycle the CBN executed from June 2023 onwards, when it began raising rates from 18.5 percent to combat surging price pressures.

The implications for Nigerian businesses remain substantial. Commercial lending rates, which currently hover between 28 and 35 percent depending on creditworthiness, would only moderate marginally under this scenario. Small and medium enterprises already struggling with double-digit borrowing costs would continue facing headwinds in accessing affordable credit. Manufacturing firms report that elevated rates are eroding profit margins and discouraging capital investment. If Standard Chartered's projection proves accurate, businesses cannot expect meaningful relief until late 2026 at the earliest.

For ordinary Nigerians, the forecast carries mixed signals. Mortgage rates, already exceeding 20 percent annually, are unlikely to fall dramatically, keeping homeownership out of reach for millions. Consumers carrying personal loans or credit card debt will continue servicing high interest burdens. Conversely, savers and fixed-income investors may benefit from elevated returns on Treasury bills and savings accounts throughout 2025 and into 2026, providing some shield against eroding purchasing power.

The naira's trajectory depends heavily on monetary policy direction. A prolonged period of elevated rates typically attracts foreign portfolio inflows seeking higher returns, supporting the currency. However, if inflation remains sticky, the CBN may face pressure to maintain restrictive policies longer than optimal for economic growth. Currency speculators monitoring the policy path closely will factor Standard Chartered's projection into their trading decisions. A 25 percent rate by year-end 2026 would still represent restrictive monetary conditions by historical standards, potentially sustaining naira strength.

Inflation remains the critical variable in this forecast. Headline inflation currently sits around 32 percent, driven by food price pressures, energy costs, and persistent currency weakness. Core inflation, stripping out volatile food prices, hovers near 25 percent. Unless these trends reverse sharply, the CBN lacks room to cut aggressively without risking renewed currency depreciation and price acceleration. Standard Chartered's projection implicitly assumes inflation moderates gradually but remains well above the CBN's medium-term target of around 9 percent.

Market participants have already begun pricing in a slower easing trajectory. Investors demanding yields on longer-dated government bonds have adjusted expectations accordingly. The outlook suggests financial conditions will remain tight throughout 2025 and most of 2026, constraining credit growth and economic expansion. This creates a delicate balancing act for policymakers seeking to support growth while anchoring inflation expectations. Standard Chartered's forecast reflects the consensus view that this balance will tilt toward inflation control for at least the next 18 months.