Prices are rising more slowly. Why the CBN still might not cut rates

Nigeria's headline inflation rate fell to 15.39% in August from 15.43% in July, according to the National Bureau of Statistics. It is the third consecutive monthly decline, following 15.91% in June and a peak of 15.93% reached in May after prices accelerated through March, April and May.

The Monetary Policy Committee of the Central Bank of Nigeria meets for its 307th session with a broader set of easing signals than it held at either of its two previous meetings. The benchmark rate has been 26.5% since February, when the committee cut by 50 basis points.

One expects a cut. Three expect a hold — none on the grounds that inflation has failed to improve.

In Simple Terms

Falling inflation does not mean falling prices. It means prices are climbing more slowly than they were.

Take ₦100 of shopping from August last year. It now costs about ₦115.39. (Derived from the 15.39% figure.) A year ago the equivalent basket had risen to roughly ₦123.14, because inflation then was 23.14%. So the climb has eased by 7.75 percentage points — but nothing on the shelf has got cheaper.

The committee's job is to decide whether that easing is solid enough to start making money cheaper to borrow, without the price rises picking up again.

The Money

The benchmark rate is the price the CBN charges banks, and it ends up as the floor under everything banks charge everyone else. At 26.5% it sits roughly 11.1 percentage points above inflation — an unusually restrictive gap.

That gap has consequences the committee can see. Muda Yusuf of the Centre for the Promotion of Private Enterprise argues borrowing costs have become a major constraint on businesses and investors, with companies turning to commercial paper as bank lending gets squeezed by the cost of funds.

A 50-basis-point cut — half a percentage point — would take the rate to 26.0%. (Derived.) That is not a large move in the life of a business loan. Its significance would be as a signal rather than as relief.

Follow the Money

Who a decision reaches, and how. Beyond the analyst comments, this is Rainingmoney's reading.

Borrowers. Businesses carrying overdrafts and term loans feel the benchmark rate most directly. A half-point cut shaves little, but the direction of travel affects what banks price into new lending.

Savers and fixed-income investors. Treasury bill returns are already falling. The 364-day stop rate came down 22 basis points to 16.62% at the September 9 auction, the third consecutive cut and 97 basis points in total.

Banks. Yusuf's point cuts both ways: high rates widen margins on existing loans but shrink the volume of lending worth doing, and push corporate borrowers toward commercial paper instead.

Rural households. The group least served by the headline number. Rural monthly inflation accelerated while urban slowed, and food inflation in Adamawa and Zamfara is running near double the national food rate.

Government. Falling market rates reduce the cost of financing the deficit, which is quietly one of the larger effects of any easing.

The Bigger Picture

Two things are happening at once, and they don't point the same way.

Domestically, the disinflation has broadened. It is no longer one line in the index doing the work: monthly momentum, core and food all moved together in August. That is the pattern central banks look for before they trust a trend.

Externally, oil is moving back up. The analysts expecting a hold all point to the same mechanism — higher crude feeding into transport fares, shipping costs and imported goods — which would arrive in the inflation data after the committee has already decided. Idris Oyekan of Quantum Zenith ties it to renewed geopolitical conflict pushing energy and freight costs higher.

Layered on top is an election cycle that tends to put more money into circulation. More liquidity, all else equal, means more price pressure.

The Jargon

Monetary Policy Committee (MPC) — the group at the CBN that sets Nigeria's benchmark interest rate, meeting several times a year.

Monetary policy rate (MPR) — that benchmark. It is what the CBN charges banks, and it sets the floor under what banks charge customers.

Basis point — one hundredth of a percentage point. A 50-basis-point cut is half a percentage point.

Disinflation — prices still rising, but more slowly. Different from deflation, where prices actually fall.

Core inflation — inflation with food and energy stripped out, because those two swing wildly. It shows the underlying trend.

Month-on-month inflation — how much prices rose in one month, rather than over a year. It shows what is happening now instead of what happened since last year.

Stop rate — the yield at which the CBN stops accepting bids at a Treasury bill auction. Falling stop rates mean the government is borrowing more cheaply.

Financial intermediation — banks' core job of taking deposits and lending them out. When funds cost too much, this gets squeezed.

What Happens Next

Known. Inflation has fallen three months running, on a broadening basis. The policy rate is 26.5%. Treasury bill rates have fallen at three consecutive auctions. Reserves stood at $54.209 billion on September 7.

Possible. A 50-basis-point cut to 26.0%, which one of the four analysts expects. A hold, which three expect. Renewed energy costs feeding into transport and imported goods over coming months. Election-related liquidity adding to price pressure.

Unknown. Whether August's slower monthly pace holds into September. How far oil moves and how quickly it reaches Nigerian prices. Whether the rural-urban divergence narrows or widens. And the committee's own weighting of these risks, which will only be visible in the communiqué.

Rainingmoney's Take

Analysis, not reporting.

The striking feature of this debate is how little of it is about inflation. Every analyst quoted accepts the improvement is real and none argues for tightening. The disagreement is entirely about a shock that has not yet arrived in the data.

That reframes the decision. The committee is not reading the numbers differently from the market — the Treasury bill market has already started easing on its own. It is deciding how much institutional confidence to place behind a trend that is three months old in a country where inflation has reversed before.

Yusuf's argument deserves more attention than it usually gets: if a meaningful share of what remains is structural — supply chains, logistics, insecurity in food-producing states — then holding at a deeply restrictive rate buys very little disinflation while charging real businesses a great deal for it. The Adamawa and Zamfara figures make that case better than any model. A 38.85% food inflation rate is not a monetary phenomenon.

None of which tells you what the committee will do. But it suggests the more interesting question is not the size of the move — it is whether the CBN starts saying out loud that interest rates alone cannot finish this job.