Nigeria’s central bank is anticipated to resume easing monetary policy with what could be its largest interest-rate cut since 2020, according to a Bloomberg poll of economists. This potential move is fueled by a stronger naira, moderating inflation, and rising foreign-exchange reserves, providing policymakers with an opportunity to bolster economic growth.

All six economists surveyed by Bloomberg expect Governor Olayemi Cardoso to lower the benchmark rate when he announces the monetary policy committee’s decision after 2 p.m. in Abuja. The central bank unexpectedly held the benchmark rate at 27% in November.

The anticipated cut varies in magnitude, with two economists forecasting a 50 basis-point reduction, while the remaining four predict a 100 basis-point cut. A cut of 100 basis points would be the largest since September 2020, during the peak of the coronavirus pandemic.

Such a move would align Nigeria with broader trends in Africa, where countries like Zambia and the Democratic Republic of Congo are reducing rates as stronger currencies and lower oil prices contribute to moderating inflation.

Nigeria’s inflation rate fell to 15.1% in January from 15.2% a month earlier, aided by easing food prices. The naira has also experienced significant strengthening, appreciating by more than 6% since the beginning of the year. This appreciation follows the central bank's decision to grant bureaux de change operators access to the main foreign-exchange market, which has enhanced retail dollar liquidity and narrowed the gap between the official and unofficial naira rates.

These factors, coupled with foreign reserves of around $49 billion, provide the MPC with room for a “modest adjustment of 50 basis points,” according to Ayodele Akinwunmi, chief economist at United Capital Plc, to support the economy. However, Akinwunmi suggests that a more aggressive easing is unlikely due to the continued expansion of broad money supply.

Cardoso earlier this month also cautioned about the potential risks associated with increased fiscal spending ahead of general elections scheduled for early next year, emphasizing that excess liquidity within the banking system could jeopardize price stability if not carefully managed.

Goldman Sachs Group Inc. anticipates a larger move. They note that yields at the central bank’s open market operations (OMO) — bill auctions to local lenders and foreign portfolio investors — which have effectively become its main policy tool, have fallen by about 150 basis points in recent months. Andrew Matheny, a senior economist at Goldman Sachs, believes that these trends “tend to lead moves in the policy rate,” making a cut of a similar magnitude consistent.