The International Monetary Fund has supported the Central Bank of Nigeria’s decision to cut interest rates, saying the move was right because inflation has fallen significantly.
The Fund said the cut does not mean borrowing has become cheap, as monetary conditions in the country remain tight.
The IMF made its position known at a press briefing on its Regional Economic Outlook for Sub-Saharan Africa, October 2026, held during the ongoing IMF/World Bank Annual Meetings in Bangkok, Thailand.
The Director of the African Department, Zeine Zeidane, explained that falling inflation had given the CBN room to lower the cost of borrowing, without necessarily signalling a shift towards easing.
He said the CBN’s decision to reduce the real interest-rate burden was appropriate given the improved inflation outlook, but stressed that monetary conditions remained restrictive.
“Now, on the question on monetary policy, what I can say is that, in the case of Nigeria, they have made significant progress towards lowering inflation because it has been coming from a high level, and they had a high real interest rate.
“So, they decided to normalise the monetary policy to lower that real interest rate, which is appropriate in our view. It’s the right thing to do.
“And it’s not easing yet because the stance itself remains a tight stance. So, the qualification that the central bank did is the right one, in our view,” Zeidane said.
Zeidane, however, stressed that Nigeria needed to pair its monetary policy efforts with fiscal and structural reforms capable of strengthening economic growth, attracting investment and creating jobs.
The Fund also urged the Federal Government to raise more revenue from non-oil sources, deepen structural reforms to attract private investment and create jobs, and ensure that savings from subsidy reforms are channelled towards vulnerable Nigerians.
Defending the Fund’s decision to raise its 2026 growth forecast for Nigeria to 4.2 per cent, the Deputy Director of the African Department, Montfort Mlachila, said the country was benefiting from improved international oil prices.
He said the higher oil prices had boosted foreign exchange receipts and contributed to an improvement in external reserves.
He added that the increase in foreign exchange inflows had also supported liquidity in the economy, while the fall in inflation had improved the broader macroeconomic environment.
“So, in terms of growth, Nigeria is benefiting from the improved oil prices, which has raised the amount of foreign exchange receipts and, therefore, reserves have also improved, and there’s more liquidity in the economy.
“So, we are upgrading the growth this year from 4.0 last year to 4.2, and a similar level, 4.3 next year,” Mlachila said.
He attributed the projected growth partly to favourable external conditions, notably higher oil prices, and named services as the main driver of domestic economic expansion.
“Growth this year is largely driven, apart from benefiting from the very propitious external environment, growth in the economy is mostly driven by services.
“And also, one thing which has happened over the past several months, starting in 2025, is a significant decline in inflation, which has improved the overall macroeconomic situation and availability of foreign exchange,” he added.
Despite the improving outlook, the IMF warned that Nigeria needed to reduce its reliance on oil revenue and strengthen domestic revenue mobilisation to create the fiscal space needed to finance development priorities.
Zeidane said the government should prioritise revenue mobilisation outside the oil sector while continuing reforms to make the country more attractive to private investors.
He said: “Our advice for the government has always been to, on one side, mobilise more domestic revenue outside the oil sector to create fiscal space for education, health infrastructure, to make sure that, but at the same time, continue the structural reform to be more attractive for the private sector.
“This is a country that has a lot of dynamism, a lot of young entrepreneurs, and a young, tech-savvy population. So, there is, and it’s a large market, very attractive for private investment in general.
“But it’s important to do structural reform in terms of governance, business environment, as I said, integration, and so all of these will certainly help accelerate growth and create jobs.”
The IMF’s recommendation comes as the government continues its efforts to stabilise the economy following major policy changes, including exchange-rate reforms and the removal of petrol subsidies, which have raised the cost of living for households and sparked concerns about how the benefits of reform are distributed.
On social protection, Zeidane said governments needed to prioritise the protection of vulnerable citizens, adding that this principle was central to the IMF’s policy advice across countries and was not peculiar to Nigeria.
“On the question on subsidies, what I want to say is that, as an institution, we recommend in general to governments to pay great attention to social protection and to protect the most vulnerable component of society.
“It’s not specific to Nigeria. If you look at our programme, we have many programmes where we have always an integrative target on social spending. We care a lot about the most vulnerable component of society,” he said.
He argued that broad-based subsidies, particularly on energy, often disproportionately benefit wealthier households, meaning governments spend substantial resources supporting consumers who may not need help.
“Our advice on subsidies is that if you look at subsidies in general, and in particular energy subsidies, they benefit the wealthiest component of society. So, if you do a certain amount of subsidies, most of it is going to those who don’t need it,” Zeidane said.
According to him, the right approach is not necessarily to withdraw subsidies abruptly, but to phase them out gradually and ensure that the resulting savings are used to support households in need.
“And our advice in many places has been to phase these subsidies gradually and make sure that what you save from the subsidy reform is well targeted to those who actually need it.
“It’s better to support people who need support than supporting products that actually can affect both your fiscal position, but also, for oil importers, for example, the level of import bill that you have.
“So, it’s important to have a targeted system of support to the most vulnerable component of society,” he added.
