Hope for big interest rate cuts fades as inflation rises

By Chinwendu Obienyi

With Nigeria’s headline inflation poised to resume its upward trajectory in March 2026 amid re-emerging price pressures and the Middle East conflict, the scope for aggressive interest rate cuts in the near term appears increasingly limited.

According to Quest Merchant Bank, the global energy shock is already feeding into local markets, triggering upward adjustments in fuel pump prices.

This, the bank said, has intensified macroeconomic pressures on both businesses and households. This development is expected to further squeeze household purchasing power and raise operating costs for businesses, many of which are already grappling with a fragile macroeconomic environment.

Supporting this outlook, latest data from the Central Bank of Nigeria (CBN) indicates a sharp 44 per cent m/m increase in the average price of Nigeria’s Bonny Light crude, which rose to $104.8 per barrel in March.

This marks a return to price levels last seen in 2022, when global oil markets were rattled by geopolitical tensions following the Russia–Ukraine war.

Reflecting these developments, analysts have revised their inflation forecasts upward to 15.40 per cent year-on-year (y/y) from a previous estimate of 14.62 per cent, and 4.20 per cent month-on-month (m/m) from 3.50 per cent for March. This shift signals a likely end to the recent moderation in inflation and raises concerns about a possible return to sustained price pressures.

Quest Merchant Bank warned that a prolonged conflict poses a significant downside risk to global economic recovery and the ongoing disinflation process.

“Early signs of this are already visible in the Euro Area, where preliminary data shows inflation rising to 2.5 per cent y/y in March, up from 1.9 per cenr in February, its highest level since January 2025.

This resurgence in inflation has important implications for global monetary policy. Central banks are now likely to adopt a more cautious stance on policy easing, as they evaluate the persistence of geopolitical risks and their broader macroeconomic impact.

With domestic inflation expectations now notably higher due to rising energy costs, the likelihood of aggressive interest rate cuts this year appears increasingly uncertain”, the merchant bank said.

On the positive side, elevated crude oil prices could boost foreign exchange inflows from oil exports, providing some support to external reserves and fiscal revenues.

However, persistent challenges around suboptimal crude oil production may limit the extent of these gains, underscoring the structural constraints facing Africa’s largest oil producer.