Analysts expect Nigeria’s central bank to cut interest rates on Wednesday (September 23), citing softer inflation and a firmer naira as giving policymakers scope to loosen monetary policy.

Analysts at CSL Stockbrokers in Lagos said the conditions for a modest cut have improved thanks to “clear disinflationary momentum” at home and a friendlier external backdrop after the US Federal Reserve resumed rate cuts. “This reduces the risk of capital flight and gives the CBN more flexibility,” the brokerage said in a client update.

The central bank’s Monetary Policy Committee (MPC) began a two-day meeting on Monday (September 22) and is due to announce its decision on September 23, against a backdrop of declining headline inflation, which slowed for the fifth straight month to 20.1% y/y in August – aided by an appreciating naira and higher foreign-exchange reserves.

CLS said the currency has gained about 3% in recent weeks to NGN 1,487/$ at the official window – its strongest in seven months – while forex reserves climbed to $42bn. The naira’s recovery has also been visible on the parallel market, where it strengthened to around NGN 1,515–NGN 1,517/$. Economists credit reforms under Nigerian Central Bank governor Olayemi Cardoso and reduced speculative trading for the turnaround.

The brokerage expects the MPC to lower its benchmark rate by 50 to 100 basis points from 27.5%. A narrower corridor around the policy rate may also be used to improve control over interbank liquidity.

The outlook is equally important for bond investors. “A shift towards monetary easing would have meaningful implications for the fixed-income market,” CSL said, pointing to potential outperformance at the long end of the curve if the bank delivers.

Other analysts struck a note of caution. Proshare Research noted that core inflation fell in July for the first time in three months, but warned that flooding and supply chain risks could reverse the trend.

The Lagos Chamber of Commerce & Industry noted that energy and food costs remain the biggest inflation drivers, warning that unless domestic agro-processing is strengthened, price pressures could return.

The IMF noted in its Article IV staff report that “naira stabilisation and improvements in food production brought inflation to 23.7% y/y in April 2025 from 31% annual average in 2024.” It praised reforms that removed fuel subsidies, ended monetary financing of the deficit and improved the FX market. On growth, the Fund projected the economy would expand by 3.4% in 2025, supported by higher oil output, a new domestic refinery and robust services, with medium-term growth expected to hover around 3.5%.

Oil continues to underpin Nigeria’s external position. The Punch newspaper reported that the country earned $2.21bn from crude exports to the United States between January and July, shipping 28.7mn barrels. At home, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said 67.6mn barrels were allocated to local refiners in the first eight months of the year under the Domestic Crude Supply Obligation policy.

The World Bank said in its May 2025 Nigeria Development Update that reforms had created “fiscal space” for infrastructure and social spending, but warned that weak non-oil revenues and high debt service costs could still strain the budget if shocks occur. It added that Nigeria’s ability to maintain investor confidence depends on sustaining recent policy discipline.