The International Monetary Fund has urged central banks to be cautious about lowering interest rates, warning that price stability remains essential amid uneven economic growth and lingering inflation.
In its latest 13-page World Economic Outlook update, the IMF said that although some economies are showing signs of modest recovery, inflation pressures persist.
The Fund stressed that policymakers must strike a careful balance between stimulating growth and preventing inflation from rising again.
“Monetary policymakers in countries where inflation is at or close to target should rely on a forecast-centred approach,” the report said. “Where economies are experiencing negative demand shocks, a gradual reduction in policy rates may be considered to cushion economic activity, provided risks to price stability objectives are contained.”
The IMF emphasised that in regions where inflation continues to exceed targets, central banks should adopt a more cautious, data-driven approach.
“In economies facing adverse supply shocks, policymakers confront complex trade-offs between the risk of a growth slowdown and the risk of persistent inflation. In such cases, further monetary easing should proceed only where there is robust evidence that inflation expectations remain anchored and inflation is returning toward target,” the document added.
While Nigeria’s robust growth outlook places it as a key driver of Sub-Saharan Africa’s expansion, the IMF warned that maintaining this momentum will depend on disciplined fiscal and monetary policies.
Headline inflation slowed to 15.15 per cent year-on-year in December 2025 from 17.33 per cent in November, following a methodological review by the National Bureau of Statistics.
Meanwhile, the Monetary Policy Rate has remained at 27 per cent since at least November 2025, as the MPC maintains a tight stance to curb inflation amid heightened risks.
The Fund highlighted the critical role of central bank independence in preserving macroeconomic stability, cautioning that straying from credible monetary frameworks could lead to fiscal dominance—where government financing pressures weaken monetary policy and undermine the credibility needed to anchor inflation expectations.
The IMF added that navigating today’s volatile global environment remains essential for sustaining stability.
“Central banks must articulate policy intentions transparently and consistently to ensure that expectations remain well-anchored. The independence of monetary authorities, both legal and operational, remains paramount for economic growth and price stability,” the report stated.
The IMF also highlighted wide differences in economic performance and inflation patterns across regions, explaining that increased investment in technology is likely to raise real neutral interest rates at varying levels among countries, influencing how much room each economy has to reduce interest rates.
“This heterogeneity underscores the need for tailored, country-specific monetary policy decisions rather than blanket approaches,” the Fund said.
While growth has remained resilient across several emerging markets, the IMF warned that maintaining expansion will demand continued vigilance. It advised central banks to stay flexible yet cautious, noting that aggressive or premature rate cuts could jeopardise hard-won progress on price stability.
