IMF Backs CBN’s Policy Shift, Cardoso Says FX Crisis Forced Nigeria to Diversify Inflows

***• ******Explains shift in monetary strategy ***

• ***Lists independent MPC decisions, transparency, consistent communication ******as drivers of market confidence ***

• Fitch revises outlook on 9 Nigerian banks to positive on sovereign outlook revision

Nume Ekeghe in Bangkok, Thailand

The International Monetary Fund (IMF) has backed the Central Bank of Nigeria’s (CBN) monetary policy realignment, describing the adjustment as appropriate following significant progress in reducing inflation, while stressing that the overall monetary policy stance remains tight.

The endorsement came as CBN Governor, Mr. Olayemi Cardoso, disclosed that Nigeria’s foreign exchange (FX) crisis forced the country to look beyond oil for FX inflows, particularly after net foreign reserves fell to about $3 billion and outstanding forex backlogs exceeded $7 billion.

He also explained the rationale for the 350-basis-point reduction in the Monetary Policy Rate (MPR) at the September 2026 MPC Meeting, citing improvements in key macroeconomic indicators and the need to address weaknesses in monetary policy transmission. The CBN’s MPC had cut the MPR from 26.5 per cent to 23 per cent at its September 2026 meeting, a decision that surprised market analysts.

Also, Fitch Ratings has revised the outlooks of nine Nigerian banks and two bank holding companies to Positive from Stable. Their Long-Term Issuer Default Ratings (IDRs) have been affirmed at ‘B’. The affected banks are Access Bank Plc, Zenith Bank Plc, First HoldCo Plc, First Bank of Nigeria, United Bank for Africa Plc (UBA), Guaranty Trust Holding Company Plc (GTCO), Guaranty Trust Bank Limited (GTB), Fidelity Bank Plc, First City Monument Bank Limited (FCMB), Wema Bank Plc and Bank of Industry Limited (BOI).

Speaking at the African Department press briefing at the ongoing IMF/World Bank Annual Meetings in Bangkok, Thailand, the Director of the IMF’s African Department, Zeine Zeidane, said Nigeria’s progress in reducing inflation had created room for the central bank to normalise monetary policy and lower the real interest rate without moving to an accommodative stance.

“So, they decided to normalise somewhat the monetary policy to go to something to lower that real interest rate, which is a component, in our view. It’s the right thing to do, and it’s not easing yet because the stance itself remains a tight stance,” he said.

Zeidane added that the Fund considered the CBN’s adjustment appropriate, emphasising that the move did not amount to a broader easing of monetary conditions.

The IMF said Nigeria was benefiting from improved external conditions, including higher oil prices and increased foreign exchange receipts, which had helped strengthen reserves and improve liquidity in the economy.

The Deputy Director of the IMF’s African Department, Montfort Mlachila, said the more favourable external environment had contributed to stronger growth prospects.

“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,” he said.

Mlachila disclosed that the IMF had raised Nigeria’s growth forecast for 2026 to 4.2 per cent, from 4.0 per cent in 2025, and projected growth of 4.3 per cent in 2027.

He attributed the outlook partly to favourable external conditions, while noting that the services sector remained the principal driver of economic activity.

Mlachila also pointed to the significant decline in inflation since 2025, saying it had improved the overall macroeconomic situation and the availability of foreign exchange.

However, the IMF stressed that sustaining stronger growth would require Nigeria to deepen structural reforms, strengthen domestic revenue mobilisation and improve the business environment to attract private investment.

Zeidane urged the government to mobilise more non-oil revenue to create fiscal space for critical sectors, including education, healthcare and infrastructure.

“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,” he said.

He added that Nigeria’s large market, young entrepreneurs and technology-savvy population presented significant opportunities for private investment, provided structural constraints were addressed.

“But it’s important to do the 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,” Zeidane said.

The multilateral institution also urged the government to ensure that savings from subsidy reforms were directed towards vulnerable households rather than maintaining broad-based support that disproportionately benefits wealthier segments of society.

Zeidane said the IMF generally advised governments to prioritise social protection, particularly during periods of economic adjustment.

“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,” he said.

He urged governments to phase out subsidies gradually and channel the resulting savings towards those most 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,” he added.

Forex Crisis Forced Nigeria to Seek Alternative Inflows

Cardoso disclosed that Nigeria’s foreign exchange crisis had forced the country to look beyond oil for foreign exchange inflows, particularly after net foreign reserves fell to about $3 billion and outstanding forex backlogs exceeded $7 billion.

Speaking at a panel session titled ‘Debate on the Global Economy: Forging Resilient and Dynamic Economies for the Future,’ he said the crisis compelled the CBN to explore diaspora remittances more aggressively and address bottlenecks that discouraged Nigerians abroad from using formal channels.

“You know, when you are going through a crisis, it forces you to be creative, and that was the situation Nigeria faced,” he said.

The experience, he added, underscored the limitations of depending on oil to meet the country’s foreign exchange needs, particularly when production challenges weakened expected inflows.

“We were clear that relying on oil was not a sustainable model,” he said.

Cardoso disclosed that monthly diaspora remittances rose from $200 million when the initiative began to $600 million by the end of its first year, surpassing the initial target of doubling inflows.

The CBN subsequently set a target of $1 billion in monthly remittances, with inflows reaching $950 million by July.

He attributed the increase to efforts to understand the challenges facing Nigerians abroad and remove obstacles preventing more money from flowing through formal channels.

“When we understood the problems, we were very quick to ensure that we were removing all the bottlenecks in the way of ensuring that capital flowed,” he said.

Cardoso said Nigeria must sustain its reforms to demonstrate that lasting economic stability was achievable and strengthen its position among African economies.

He cited the country’s return to the FTSE Index and the JPMorgan Bond Index as evidence of renewed investor confidence, adding that improved macroeconomic conditions had also helped strengthen its standing with rating agencies.

“We need to stay that course, and we need to be able to show the world that it is possible and that things have changed,” he said.

He maintained that the success of the reforms would depend on consistent implementation and measurable outcomes rather than policy announcements alone.

“It’s not by saying, but by doing, and in my view, the numbers speak for themselves,” he said.

Cardoso Explains Shift in Monetary Strategy

Speaking at another panel on central bank decision-making and communication at the Annual Meetings, Cardoso acknowledged that the decision caught the market off guard, adding that improving economic conditions provided room for the adjustment.

He cited rising external reserves, declining inflation and continued economic growth as key factors informing the decision.

“Our external reserves were at their highest level in 18 years. Inflation was consistently coming down, despite rising in many parts of the world. Growth was also continuing at a reasonable pace,” he said.

“All these factors created a situation in which we felt we were in a relatively good position to do something we could have done earlier.”

Cardoso said the adjustment was also intended to address weaknesses in monetary policy transmission, particularly the gap between the benchmark interest rate and the rates at which commercial banks were lending.

“There was a gap, and so we felt it was time to close that gap and reset that, and that’s why we did it,” he said.

According to him, the market had recognised the disconnect within the monetary policy framework and responded more calmly than might have been expected.

“The markets knew that there was a disconnect, and we closed that gap, so they didn’t necessarily panic,” he said.

He explained that the CBN introduced reforms to address some of the weaknesses, including improving coordination between fiscal and monetary authorities and introducing an overnight financing rate to provide greater clarity on interest rate conditions.

The governor said an agreement between the fiscal and monetary authorities helped improve coordination and ensured that both sides were aligned in their approach to economic management.

Cardoso maintained that the rate adjustment did not represent a departure from the CBN’s commitment to price stability but reflected improvements in economic conditions and efforts to strengthen the effectiveness of monetary policy.

Independent MPC, Transparency Drive Market Confidence

Cardoso attributed the market’s response to the rate cut partly to the credibility the CBN had built through consistent policy implementation, clearer communication and transparent decision-making.

Responding to a question from the IMF’s First Deputy Managing Director, Dan Katz, on how the CBN managed communication around the unexpected decision, Cardoso said investors needed to understand the reasoning behind policy changes.

He disclosed that he spent more time than usual engaging journalists after the MPC meeting to explain the economic conditions and considerations that informed the decision.

“I spent more time than normal in explaining where we were coming from and where we were, and it made it easier for them to understand why we took the decision,” he said.

Cardoso stressed that credibility was essential when implementing decisions that could initially surprise investors.

“To do such a thing successfully, you must have an element of credibility with the market,” he said.

“The market must have consistently seen you over a period of time doing things in the right way and believe they can put their trust in you,” he added.

He also highlighted the importance of independent views and robust debate within the MPC, which comprises 12 members, including seven internal and five external members.

According to him, the external members bring different perspectives that challenge assumptions and help prevent groupthink in monetary policy deliberations.

“Fundamental to that was ensuring that the outside, independent members of the MPC were strong, well-recognised, independent-minded people, so that the risk of groupthink was significantly reduced,” he said.

Cardoso explained that MPC members receive economic data ahead of meetings, allowing them to scrutinise the figures, seek clarification and conduct independent analyses before formal deliberations.

“There’s never a case where I have meetings with internals and come to a conclusion on the MPC meetings before we go there. I don’t do that. I give all the data out in advance. People interrogate them,” he said.

He added that publishing individual members’ statements would strengthen transparency and accountability by helping the public understand the reasoning behind monetary policy decisions.

Cardoso also said external MPC members had been involved in the CBN’s transition towards an inflation-targeting framework, which he described as an important part of the bank’s monetary policy direction.

Fitch Revises Outlook On 9 Nigerian Banks to Positive on Sovereign Outlook Revision

Fitch Ratings has revised the Outlooks of nine Nigerian banks and two bank holding companies to Positive from Stable. Their Long-Term Issuer Default Ratings (IDRs) were also affirmed at ‘B’.

The affected issuers are Access Bank Plc, Zenith Bank Plc, First HoldCo Plc, First Bank of Nigeria Ltd (FBN), United Bank for Africa Plc (UBA), Guaranty Trust Holding Company Plc (GTCO), Guaranty Trust Bank Limited (GTB), Fidelity Bank PLC, First City Monument Bank Limited (FCMB), Wema Bank PLC and Bank of Industry Limited (BOI).

According to a statement, the Outlook revisions to Positive followed a similar action on Nigeria’s ‘B’ Long-Term IDRs on 9 October 2026, which it stated reflected ongoing reform of the policy framework and Fitch’s increased confidence that momentum will not be disrupted by upcoming elections.

“The revision of the Outlooks on the Long-Term IDRs of Access Bank, Zenith Bank, FHC, FBN, UBA, GTCO, GTB, Fidelity Bank, FCMB and Wema Bank reflects Fitch’s view that the sovereign’s credit profile and Nigeria’s operating environment may become less of a constraint on the issuers’ standalone creditworthiness.

“The revision of the Outlook on the Long-Term IDRs of FHC and FBN is supported by the issuers having restored compliance with the total capital adequacy ratio (CAR) requirement. BOI’s Outlook revision reflects our view that the government’s ability to provide support to the policy bank may improve.

“The National Ratings of all the issuers and the Government Support Ratings (GSRs) of the eight commercial banks and two bank holding companies are unaffected,” it explained.

Furthermore, the global rating agency noted that the “Long-Term IDRs of Access Bank, Zenith Bank, FHC, FBN, UBA, GTCO, GTB, Fidelity Bank, FCMB and Wema Bank are driven by their standalone creditworthiness, as expressed by their Viability Ratings (VRs).

“The VRs are highly influenced by Nigeria’s Long-Term IDRs due to high sovereign exposure in the form of fixed-income securities and cash reserves at the Central Bank of Nigeria (CBN) relative to Fitch Core Capital (FCC; end-2025: ranging between 150% and 500%).

“The VRs of Zenith Bank, GTCO and GTB are one notch below their implied VRs due to the operating environment/sovereign rating constraint. Access Bank’s VR is one notch below its implied VRs due to the capitalisation and leverage adjustment. The VRs of the two bank holding companies, FHC and GTCO, are equalised with their respective group VRs due to the absence of common equity double leverage and high fungibility of capital and liquidity.”

It added: “Nigeria’s operating environment is improving. The Nigerian naira has appreciated about seven percent in nine-month of 2026 and the CBN continues to build gross international reserves. Inflation increased at the onset of the Iran conflict but reduced slightly to 15.4 percent in August (June: 15.9%) and we expect it to reduce further, supporting a continued easing of monetary policy. We forecast real GDP growth of 4.3% in 2026 (2025: 4%).

“The withdrawal of longstanding regulatory forbearance, primarily relating to the classification of problem loans, resulted in increased impaired loans ratios at end-2025. However, significant capital raisings to meet new paid-in capital requirements effective from end-1Q26 had cushioned the withdrawal and provide room for loan and business growth. The banking sector has proved itself resilient to burdensome regulations, particularly the high cash reserve ratio requirement of 45% for commercial banks.

“Net loans represent a small percentage of the issuers’ total assets (end-2025: between 18% and 41%). Cash reserves at the CBN and Nigerian sovereign fixed-income income securities are material (end-2025: between 23% and 45% of total assets), linking the issuers’ creditworthiness to that of Nigeria.

“FBN breached its minimum bank-solo CAR requirement of 15% at end-2025 due to a sharp increase in impaired loans but has restored compliance, with the ratio increasing to 16.7% by end-1H26 due to strong profitability and a small core capital raising.

“Access Bank has breached a regulatory limit on its investments in foreign subsidiaries of 10% of shareholders’ funds, and its bank-solo CAR (end-1Q26: 17.4%) has only a moderate buffer over its 15% minimum regulatory requirement. However, Fitch expects Access Bank to complete measures, including recalling capital from and selling some small shareholdings in certain subsidiaries, that will restore its compliance with the limit and improve its bank-solo CAR by end-1Q27.

“BOI’s Long-Term IDR is driven by its GSR, which reflects potential support from the government. Fitch believes the government has a high propensity to support BOI given its 99.9% state ownership, well-established policy role, and high share of government-guaranteed funding. However, the government’s ability to provide support is limited by its own creditworthiness, as indicated by its Long-Term IDR of ‘B’.”

However, it stressed that “the Long-Term IDRs and VRs of Access Bank, Zenith Bank, FHC, FBN, UBA, GTCO, GTB, Fidelity Bank, FCMB and Wema Bank would be downgraded following a downgrade of Nigeria’s Long-Term IDRs.

“Barring a sovereign downgrade, a downgrade of the Long-Term IDRs and VRs could result from a material increase in problem loans and the erosion of capital buffers, or a severe tightening of foreign-currency liquidity.

“As bank holding companies, the Long-Term IDRs and VRs of FHC and GTCO may be notched off their respective group VRs if common equity double leverage increases above 120% for a sustained period.

“BOI’s Long-Term IDR and GSR would be downgraded if Nigeria’s Long-Term IDRs were downgraded. They would also be downgraded if the authorities’ propensity to provide support reduced. This could arise from a change in BOI’s policy role or a material reduction in government ownership.”