Nigeria seen holding rates despite inflation risks from oil windfall

Nigeria’s money supply is expected to rise further in the coming months as higher crude prices boost government revenue and federal allocations, increasing pressure on the central bank’s effort to contain inflation, according to Bismarck Rewane, CEO of Lagos-based consultancy Financial Derivatives Company (FDC).

Higher oil prices lifted Federation Account Allocation Committee distributions by 7.94 percent in March to N2.04 trillion, with monthly disbursements likely to remain above N2 trillion if crude prices stay elevated amid ongoing geopolitical tensions, Rewane said in a presentation shared at the LBS Breakfast Session.

The increase in statutory allocations, alongside windfall oil earnings, is expected to inject more liquidity into Africa’s most populous economy at a time policymakers are still battling renewed inflationary pressures occasioned by the Iranian war.

Rewane projected inflation could rise to 16 percent in April from 15.38 percent previously, signalling a continued reversal in the recent moderation in price growth.

The rising prices are as a result of the pass-through effect of petrol prices that have risen more than 50 percent. That has also resulted in an increase in food prices, piling pressure on household spending.

The economist said the Central Bank of Nigeria is likely to leave its benchmark interest rate unchanged at its next Monetary Policy Committee meeting on the 19th and 20th of this month while relying on liquidity management tools such as Open Market Operations and the Cash Reserve Ratio to absorb excess cash from the banking system.

The monetary authorities slashed the key benchmark interest rate by 50 basis points to 26.5 percent in February 2026, following continued deceleration of inflation.

Policymakers adjusted the asymmetric facilities corridor around the MPR at +50/-450 basis points, a move aimed at discouraging banks from keeping idle funds with the CBN and encouraging more lending into the economy.

It also retained the Cash Reserve Ratio (CRR) for commercial banks at 45 percent and retained it for merchant banks at 16 percent. The liquidity ratio was also kept at 30 percent.

“The MPC will more likely maintain the status quo on the MPR,” Rewane said, adding that the central bank could still raise the CRR “if money supply saturation increases”.

Rewane’s comments highlight the growing tension between Nigeria’s fiscal and monetary authorities.

While rising oil prices are improving government finances and supporting FAAC distributions to federal, state and local governments, the resulting liquidity injections risk undermining the CBN’s inflation fight.

The economist warned that stronger FAAC inflows would offer only temporary relief to public finances rather than long-term economic stability, as Nigeria remains vulnerable to swings in global oil prices.

The outlook suggests policymakers may increasingly depend on aggressive liquidity sterilisation measures instead of further interest-rate hikes to keep inflation expectations anchored while preserving economic growth.