StanChart scales back Nigeria rate-cut outlook as inflation risks persist ahead of MPC

Standard Chartered has lowered expectations for interest rate cuts in Nigeria this year, warning that persistent inflationary pressures and elevated inflation expectations will likely force the Central Bank of Nigeria (CBN) to maintain a cautious approach to monetary easing despite signs that price growth could moderate over the medium term.

The global investment bank revised its average inflation forecast for 2026 upward to 15.5 percent from an earlier projection of 12 percent, while raising its 2027 forecast to 14.7 percent from 13.8 percent. The revised outlook has prompted the lender to reduce its expectation for monetary easing this year to 150 basis points, which would leave the Monetary Policy Rate (MPR) at 25 percent by year-end.

“We now see inflation averaging 15.5 percent in 2026 compared with 12 percent previously,” Razia Khan, Standard Chartered’s chief economist for Africa and the Middle East, said in a note. “We now see scope for 150 basis points of policy easing in 2026, taking the monetary policy rate to 25 percent at year-end.”

The revised outlook comes less than a week before the CBN’s Monetary Policy Committee (MPC) meets on July 20 and 21, where policymakers are expected to assess fresh inflation data and determine whether current monetary conditions remain appropriate.

The CBN has maintained a tight monetary stance to contain inflation, keeping the benchmark interest rate at 26.5 percent in May after cutting it by 50 basis points in February, its first reduction after an extended tightening cycle.

Standard Chartered’s more cautious outlook follows fresh evidence that inflation expectations remain elevated across the economy.

According to the CBN’s June Inflation Expectation Survey, more businesses and households believe prices remain high. The inflation perception index rose to 45 points in June from 44.8 points in May, with respondents identifying high energy costs, insecurity, borrowing costs and exchange rate movements as the biggest drivers of inflation.

The survey underscores a key concern for policymakers that inflation expectations remain unanchored, making it more difficult for price pressures to ease sustainably even as headline inflation slows.

Recent geopolitical developments have also complicated the inflation outlook. The conflict involving Iran pushed global energy prices higher, increasing transport costs and adding fresh pressure to domestic prices at a time when Nigerians continue to grapple with the effects of fuel subsidy removal.

Attention is now turning to the National Bureau of Statistics, which is expected to release June inflation figures on Wednesday.

Analysts broadly expect inflation to edge higher.

United Capital Research projects headline inflation will rise marginally to 15.95 percent in June from 15.93 percent recorded in May, largely reflecting higher prices of food items such as tomatoes. However, the investment firm noted that lower petrol prices helped moderate broader price pressures.

If realised, it would mark the fourth consecutive monthly increase in headline inflation, reinforcing expectations that the MPC may opt to leave interest rates unchanged next week rather than resume monetary easing.

Similarly, Financial Markets Dealers Association (FMDA) expects headline inflation to hover around 15.90 percent year-on-year, supported by favourable base effects and a slower pace of monthly price increases.

On a month-on-month basis, however, FMDA projects inflationary pressures will ease to 1.65 percent in June from 1.75 percent in May, citing lower domestic fuel prices, a stronger naira and moderating food prices. It warned that rising cooking gas prices and other household energy costs continue to keep underlying inflation elevated.

Despite near-term pressures, there are signs that inflation expectations may gradually improve.

The CBN survey showed respondents expect inflation to moderate in July and over the next six months, while global oil prices have retreated below $79 per barrel after earlier surging above $114 during the Middle East conflict.

Looking beyond this year, Standard Chartered expects inflation to slow sufficiently after January’s general elections to allow the CBN to embark on a more aggressive easing cycle, forecasting cumulative interest rate cuts of 700 basis points in 2027 and a further 350 basis points in 2028.