Between The Hammer And The Anvil: Nigeria’s Monetary Policy In An Age Of Global Protectionism, By Ummie Kabir

For nearly three years, the Central Bank of Nigeria, CBN, ran one of the most aggressive monetary tightening cycles in the country’s economic history.

When Governor Olayemi Cardoso assumed office in September 2023, the benchmark Monetary Policy Rate, MPR, stood at 18.75 percent. By September 2024, after successive rate hikes, it had climbed to 27.25 percent — a level unseen in a generation.

The logic was simple and orthodox: inflation had touched a peak above 30 percent, eroding the naira’s value, wiping out household income and savings, and threatening whatever fragile stability the economy had left. Something needed to be done. The CBN chose to tighten.

—INFLATION COOLS, BUT AT A COST—

That squeeze worked to a large extent. Headline inflation decelerated for roughly a year and a half, hovering around 15 percent by the middle of 2026, according to the National Bureau of Statistics. That is a dramatic departure from the over 30-percent peak recorded in 2024.

The Monetary Policy Committee has since eased slightly, trimming the rate by 50 basis points in February 2026 to 26.5 percent, where it has been held through subsequent meetings. Policymakers have adopted what Cardoso has repeatedly called a “cautious” stance.

The naira, once in freefall, has also shown surprising resilience through much of 2026. The relative stability has been aided by improved liquidity in the foreign exchange market and rising external reserves, even as the United States dollar strengthened globally.

But beneath these encouraging headline numbers lies a harder question that interest rates alone cannot answer: Can monetary policy, however well executed, actually solve Nigeria’s deepest economic problems? And can it do so at a moment when the very architecture of global trade — the openness that emerging economies like Nigeria have relied on to grow — is being quietly dismantled by the world’s most powerful economies?

—WHEN ORTHODOXY MEETS STRUCTURAL REALITY—

Orthodox monetary policy assumes a conventional transmission mechanism: raise interest rates, cool demand, tame inflation. In Nigeria, that mechanism is distorted.

A considerable proportion of Nigeria’s inflation is not demand-driven but cost-push and structural. It is rooted in foreign exchange inadequacy, poor infrastructure, insecurity in farming communities, and overreliance on importation — including refined petroleum products — and a logistics network of bad roads that add cost at every stage between farm and market.

Tweaking interest rates does little to fix bad roads or restore security to farmers in food production belts. It does even less to unclog the ports of Lagos or bring down the landing cost of imported diesel and other essential goods.

The CBN itself has acknowledged the tension. Cardoso has repeatedly cautioned that disinflation, though real, remains “fragile,” pointing to a surge of more than 200 percent in refined petroleum import licences as a fresh source of dollar demand and price pressure. It is a reminder that Nigeria still imports the fuel that powers its own oil-producing economy — a peculiarity that has bedeviled policymakers for decades.

Meanwhile, the naira’s stability remains heavily dependent on volatile variables such as oil earnings, diaspora remittances, and portfolio inflows that can reverse the moment global risk appetite shifts.

—A WORLD TURNING INWARD—

If Nigeria’s domestic architecture presents one set of constraints, the international environment presents another. And it is becoming steadily less forgiving.

The last two years have seen a resurgence of economic nationalism among the very economies that once championed open trade. The United States, citing forced labour concerns under Section 301 of its Trade Act, imposed tariffs of between 10 and 12.5 percent on imports from more than 80 countries in 2026, Nigeria among them. This followed the earlier judicial invalidation of blanket reciprocal tariffs introduced under the Trump administration.

The European Union has tightened its carbon border and standards regimes. China continues to protect strategic industries. Even multilateral institutions like the World Trade Organisation, World Customs Organisation, and the United Nations Conference on Trade and Development — built to police such behaviour — have struggled to restrain it.

This is the paradox developing economies now face: they are told to liberalise, attract investment, and integrate into global value chains, even as the advanced economies that designed those rules increasingly retreat behind tariff walls, subsidy regimes, and “friend-shoring” arrangements that quietly exclude countries like Nigeria. It is protectionism practised by the powerful and preached against the poor.

Nigerian trade economists note that the direct harm from the latest US tariffs is limited. America is only Nigeria’s fifth-largest export destination, accounting for roughly 5.6 percent of the $15.3 billion in exports recorded in the first quarter of 2026 — well behind India, France, the Netherlands, and Spain. Oil, gas, and fertiliser exports, which dominate Nigeria’s trade with the US, were exempted outright.

But the danger is not in the tariff rate itself. It is in what the tariff signals: a structural shift toward protectionism that will make it harder for Nigeria’s non-oil exporters in agriculture, textiles, and light manufacturing to break into lucrative Western markets — precisely when the country needs to diversify away from oil more urgently than ever.

—MONETARY POLICY CANNOT DO IT ALONE—

The role of monetary policy remains pivotal because price stability is a precondition, not an obstacle, to sustainable growth. The CBN is right to insist that Nigerians cannot save, invest, or plan around a currency in freefall.

But monetary policy alone cannot carry the burden of a structurally distorted economy.

The way forward requires fiscal and monetary policy to pull in the same direction. Years of deficit financing through the CBN’s “ways and means” facility fueled the inflation the Bank is now fighting alone.

Fiscal discipline — broadening the tax net rather than raising tax rates, cutting waste, and channelling savings from subsidy removal into productive infrastructure — must complement rather than undercut monetary tightening.

Cardoso has repeatedly urged fiscal authorities to maintain discipline, particularly around election-related spending, because loose fiscal policy can erase the gains of tight monetary policy overnight.

Nigeria must also treat export diversification as a national emergency, not a talking point. Overdependence on crude oil, which still supplies the bulk of foreign exchange earnings, leaves the naira vulnerable to oil price swings the country cannot control.

Investment in agro-processing, solid minerals value addition, textiles, and the digital and creative economy — sectors where Nigeria has genuine comparative advantage and youthful labour — must move from policy documents to financed reality, with targeted, time-bound credit lines.

—CREDIT, INCLUSION AND REGIONAL TRADE—

Issues of financial inclusion and cheaper credit for productive sectors must also be carved out of the current tight-money regime. Blanket high interest rates that treat a rice farmer in Kebbi the same as a speculative forex trader in Abuja are not sustainable.

Development finance institutions, agricultural credit guarantee schemes, and single-digit funding windows for manufacturing and export-oriented SMEs can allow the CBN to fight inflation at the macro level while still keeping the taps open where the economy most needs oxygen.

Looking beyond Nigeria’s shores, regional integration offers the clearest hedge against Western protectionism. With roughly 1.3 billion consumers, the African Continental Free Trade Area, AfCFTA, is the market Nigeria is best placed to dominate — if it invests in the roads, power, ports, and customs efficiency needed to move goods across the continent cheaply.

Growing intra-African trade would reduce Nigeria’s exposure to tariff shocks from Washington or Brussels far more effectively than diplomatic protest ever could.

—THE BOTTOM LINE—

Nigeria’s disinflation story is real and worth acknowledging. Cutting the headline rate nearly in half from its 2024 peak is no small achievement.

But an economy cannot interest-rate its way to inclusive growth when its core problems are structural: import dependence, weak infrastructure, insecurity, and an over-concentration in oil. And it cannot diversify out of oil into a global trading system that is growing more closed by the year, unless it builds resilience closer home through regional trade, domestic productivity, and a fiscal-monetary handshake that has, for too long, pulled in opposite directions.

The task ahead is not choosing between monetary orthodoxy and structural reform. It is doing both, deliberately and simultaneously, before the next external shock arrives.