Inflation rise strengthens case for rate hold as liquidity signals shift

Nigeria’s inflation rate rose to 15.38 percent in March from 15.06 percent in February, reinforcing concerns that underlying price pressures remain persistent and complicating the outlook for monetary policy ahead of the Central Bank of Nigeria’s (CBN) May meeting.

Analysts who spoke on Arise TV attributed the uptick to a combination of rising energy costs, global geopolitical tensions, and structural inefficiencies within the domestic economy.

According to Adeyemi Adenuga, research associate at Zedcrest Investment Managers, the recent increase reflects external shocks filtering into domestic prices. “The impact of geopolitical risks, particularly higher energy costs, has overshadowed expected base effects and pushed inflation higher,” he said.

He added that persistently elevated month-on-month inflation signals that underlying pressures remain intact despite earlier moderation in headline figures.

Muktar Mohammed, CEO of Finance with Muktar, noted that inflation remains largely structural, driven by unresolved challenges in energy, transportation and housing. “We are only dealing with the symptoms we have not dealt with the real issues,” he said.

Liquidity remains strong, but risks are building

Findings from the FMDA Financial Market Risk and Liquidity Survey (H1 2026) suggest that while liquidity conditions remain broadly supportive, forward-looking risks are beginning to build.

The survey shows that most market participants, over 70 percent of the respondents, describe system liquidity as loose, supported by policy actions and inflows from FAAC allocations. However, expectations are gradually shifting, with a growing share of respondents anticipating tighter funding conditions in the months ahead as 52 percent of the surveyed market participants expect interest rates to increase slightly over the next six months.

At the same time, interest rates are expected to remain elevated, reinforcing already tight financial conditions, while regulatory uncertainty and foreign exchange pressures continue to shape market sentiment.

MPC likely to hold as inflation pressures persist

The latest inflation reading has further weakened the case for near-term monetary easing, with analysts pointing to a cautious stance by the CBN.

Oluyemi Cardoso, the Governor of Central Bank of Nigeria, in a recent interview with the Financial Times, warned that rising tensions in the Middle East involving the United States, Israel, and Iran could influence the country’s interest-rate decisions.

During the International Monetary Fund Spring Meetings, IMF Managing Director Kristalina Georgieva agreed that central banks should pledge to protect price stability. On the fiscal side, policymakers should avoid making it worse by turning to policies that increase demand rather than shrink it.

Pointing to record attendance at the Spring Meetings, she said: “We know we have to engage; we know that finding solutions together is easier than doing it alone.”

However, Adenuga said the central bank has maintained a consistent bias towards keeping rates elevated. “The CBN has shown stickiness in rates and will most likely keep rates at current levels,” he said.

Similarly, Mohammed expressed scepticism about any imminent rate cuts, citing the fragility of the economy. “The economy is too fragile, I’m not expecting a rate cut,” he said.

Market in transition

The convergence of rising inflation and shifting liquidity expectations points to a financial system in transition. While liquidity remains adequate for now at an average of N4.26 trillion according to CBN data, emerging pressures from inflation, elevated interest rates, and external risks are gradually tightening conditions beneath the surface.

For policymakers, this presents a delicate balance, sustaining stability without undermining growth, in an environment where inflation risks remain firmly in play.