By: Ummie Kabir.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) recently released the communique of its 305th meeting and third sitting this year. The committee unanimously voted to retain the monetary policy rate (MPR), which benchmarks interest rates in the country, at 26.5 percent. Though interest rates do not directly appear in the consumer price index (CPI) basket, but they influence inflation severally as it drives inflation through demand, affects inflation through the foreign exchange rates and shape inflation expectations.

The apprehension which trailed the MPC stance was slightly doused by the CBN Governor, Olayemi Cardoso when he noted in the communique that “although inflation has increased marginally for two consecutive months, the committee believes the trend is temporal and largely caused by external shocks.”

It was also heartwarming to hear from Mr Cardoso that “the current macroeconomic environment will return the country to disinflationary trend in due course based on a comprehensive assessment of risks to the outlook.”

According the apex bank boss, “the MPC recognises its transitory nature and remains confident that the current macroeconomic environment is sufficiently robust to support a return to disinflation.” The committee believes the spillovers from the Middle East crisis, which have placed upward pressure on energy prices, transportation costs, and logistics globally would ease off.
The Committee further passed message of hope that “the impact of the crisis on the Nigerian economy has been minimal due to the benefits of prior policy reforms.”

As things stand, inflation is no longer the number one enemy of only the poor, as all and sundry, be it household, manufacturing and businesses at macro level, bear the brunt. For the poor, there is no guarantee that his meagre earnings would fetch the same quantity and quality of goods and services by his next visit to the market. While businesses can no longer plan as their forecasts are often disrupted.

The National Bureau of Statistics (NBS) said Nigeria’s headline inflation rate rose to 15.69% year-on-year in April 2026, up from 15.38% in March, driven primarily by rising food, transportation, and logistics costs.

While this reflects a significant drop from the 34% peaks of 2024, unceasing structural challenges, foreign exchange volatility, and imported energy shocks continue to obstruct the Central Bank of Nigeria’s goal of attaining a 6.0 percent to 9.0 percent range.

Nigeria’s journey to single-digit inflation remains a tortuous marathon. No doubt, a formal inflation targeting regime with a published target of 6 – 9 percent gives businesses and households a desirable reference point for pricing, wages, and investment. However, wrestling inflation to such an appreciable level is still far off the mark. Although the CBN and Ministry of Finance insist the disinflation course will remain steady despite global headwinds, bodies like the Nigerian Economic Summit Group (NESG) projects that single-digit inflation will not fully stabilize until 2029. The World Bank has also cautioned that hitting a single-digit target in the short term may be unrealistic without resolving domestic supply and production constraints.

Achieving this target is an arduous task against several entrenched and systemic hurdles notably large informal and uncoordinated sector, policy reversals and global shocks. After nearly a year of steady disinflation, headline figures ticked upward in April of 2026. This reversal was primarily driven by food and energy costs attributable to the conflict in the Middle East, alongside structural deficiencies in the system.
Structural bottlenecks such as infrastructural deficits, supply chain disruptions, and insecurity in major agricultural belts are responsible for the constrain in local food supply and severely limit near-term disinflation.

In order to curtail inflationary pressures, the CBN relied heavily on monetary tools over the years. Those tools work by reducing money supply or making money more expensive. This reduces demand and curtails price hikes. Traditionally, the CBN actually deploys orthodox methods and sometimes combine with unorthodox techniques to rein in inflation. Such orthodox methods include the monetary policy rates (MPR) or the benchmark interest rates, cash reserves requirements (CRR), Liquidity Ratio and open market operations (OMO). Other popular measures include loan to deposit ratio (LDR), foreign exchange unification , credit control, moral suasion and to some extent, the recently concluded bank recapitalization exercise which helps to douse inflation under tight policy regime.

However, there are limitations to the efficacy of these measures especially considering the peculiarities of Nigeria’s socioeconomic landscape. The country still has huge informal sector which gives rise to excessive lag in the monetary policy transmission mechanism ranging from six to 12 months in many instances.

Another area accounting for the limited efficacy of the orthodox tools is the supply shocks in food and energy. Both, largely accounted for the 15.69 percent in April 2026 driven by food and fuel from insecurity and Middle East conflict despite the tight measures put in place by the CBN. More than 50 percent of Nigeria’s consumer price index (CPI) is food. If insecurity keeps farmers away from farmlands in the food production belts or natural disasters like drought or floods wipe out crops, raising rates won’t grow foodstuffs. Increase in monetary policy rates can only shrink demand but can’t increase supply spontaneously.

Nigeria’s inflation is driven not only by monetary factors but also by deep-rooted supply-side shocks: insecurity in food-producing regions, energy deficits, exchange rate volatility, and weak infrastructure. These realities mean that the CBN’s policy rate, no matter how aggressive, cannot singlehandedly deliver price stability. Monetary tools can slow down demand, but they cannot grow food, fix roads, or stop oil wars. At best, CBN policies works best with effective collaboration with fiscal authority. Without fiscal discipline and supply-side fixes, rate hikes alone just slow growth without tacking inflation.

The Central Bank of Nigeria has since embrace a semblance to inflation targeting to tame inflation and anchor expectations appropriately by focusing on price stability as primary goal ahead of other goals, forward looking approach with emphasis on inflation expectations and forecasts and transparency via publication of MPC communique.

Inflation targeting, the basis of Cardoso’s strategy since 2025, is a monetary policy approach in which a central bank sets an explicit inflation target and adjusts interest rates and other tools to achieve this goal. It’s transparent and accountable compared to monetary targeting” which hasn’t controlled inflation real terms This approach provides a structured method for controlling inflation, especially in Nigeria, where inflation has been a long-standing obstacle to economic stability. This is evident in the leadership’s aggressive monetary policy stance aimed at tackling Nigeria’s persistently high inflation rates as reflected in the series of decisions made by the Monetary Policy Committee (MPC).

For inflation targeting to work, monetary policy must be complemented by fiscal discipline, improved agricultural productivity, energy sector reform, and stronger institutional coordination. Without these, Nigeria risks a cycle of high interest rates that constrain growth while inflation remains persistently elevated.

At this point in time, the focus should be on what Nigeria should do for inflation targeting to work effectively. Both the fiscal and monetary authorities must align for proper coordination. There should no more deficit monetization or financing. For the apex bank to succeed in tackling inflation, fiscal authority must balance strict monetary tightening with fiscal discipline. Structural deficiencies should be addressed so that food inflation which is substantially caused by insecurity and infrastructure gap are tackled.

The success or otherwise of inflation targeting technique sits with communication. As such, CBN must constantly explain to citizenry movements in rates and how it protects the poor. The ultimate goal should not be inflation targeting for its own sake, but sustainable price stability that protects purchasing power, encourages investment, and supports inclusive growth. Achieving this requires moving beyond text-book models to a homegrown framework that recognizes Nigeria’s unique structural dynamics. Only then will “targeting inflation” translate to real relief for households and businesses across the country.

In conclusion, Nigeria’s adoption of Inflation Targeting should be taken as a cautious beginning, not a Silver Bullet. Inflation targeting remains a work in progress rather than a settled policy success. While the Central Bank of Nigeria’s shift toward a more explicit inflation-targeting framework has improved policy transparency and anchored expectations to some degree, structural bottlenecks continue to limit its effectiveness.
However, by placing price stability at the core of the CBN’s mandate, ending fiscal dominance through Ways and Means, and embracing transparency via explicit targets and forward guidance, the country has laid the institutional groundwork that has been elusive for decades.

Ummie Kabir is with Apex Media Service