The International Monetary Fund (IMF) has cautioned central banks against rushing into sharp interest rate cuts, stressing that preserving price stability remains crucial amid uneven global growth and lingering inflation risks.
In its latest 13-page World Economic Outlook update, the IMF acknowledged that while some economies are recording modest output recoveries, inflationary pressures continue to pose a major challenge. As a result, monetary authorities must strike a delicate balance between stimulating growth and preventing a resurgence of inflation.
The Fund advised that in countries where inflation is at or near target, policymakers should adopt a forward-looking, forecast-driven approach. It added that where negative demand shocks persist, gradual rate reductions could be considered to support economic activity—provided inflation risks remain under control.
However, in economies where inflation is still above target, the IMF urged a cautious, data-dependent stance. For countries grappling with supply-side shocks, it warned that easing monetary policy should only proceed when there is strong evidence that inflation expectations remain anchored and inflation is clearly trending back toward target levels.
Turning to Nigeria, the IMF noted that the country’s robust growth outlook positions it as a key driver of Sub-Saharan Africa’s expansion. Nonetheless, it warned that sustaining this momentum will depend on disciplined fiscal and monetary management.
Nigeria’s headline inflation eased 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, reflecting the Central Bank’s tight stance aimed at anchoring inflation amid heightened risks.
The IMF also underscored the critical role of central bank independence in maintaining macroeconomic stability. It cautioned that weakening credible monetary frameworks could lead to fiscal dominance, undermining policy effectiveness and eroding confidence needed to anchor inflation expectations.
In a volatile global environment, the Fund stressed the need for transparent and consistent policy communication. It noted that differing inflation and growth dynamics across regions—along with rising technological investments that may push up neutral interest rates—mean that the scope for rate cuts varies widely among countries.
The IMF concluded that while growth has remained resilient in several emerging markets, central banks must remain vigilant. It warned that aggressive or premature rate cuts could jeopardise hard-won gains in price stability, advising policymakers to move carefully and remain guided by data in balancing growth and inflation objectives.
