Nigeria's Top Bank Plans Inflation-Targeting Shift by 2028

The Plan to Rein In Prices

The Central Bank of Nigeria is moving toward inflation targeting, a policy regime where the bank sets a specific range for acceptable price increases and uses its tools to keep inflation inside that range. Other African economies, including South Africa and Ghana, have employed comparable strategies to tame price growth and bring inflation down to single digits.

The director of the central bank's monetary policy division, Victor Oboh, stated that the transition remains on schedule. The central bank unveiled its transition framework in December and anticipates completing the shift in two years.

The Numbers Behind the Shift

Inflation had been falling from its peak, but the Iran war halted that disinflationary trend. Price growth trended upward since March, forcing the bank to hold its benchmark interest rate at 26.5% during its July 2026 meeting.

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Oboh stated, "the shift to inflation targeting will occur only when inflation is in single digits and the bank's forecasting ability has improved." The final stage involves working with fiscal authorities to set a target band for expected price movements.

Nigeria's economy faces deep-rooted challenges, including reliance on oil exports, inadequate infrastructure, and persistent foreign-exchange shortages. These issues have compounded inflationary pressures, making the central bank's task more difficult. The transition to inflation targeting is seen as a way to impose discipline and improve policy credibility, but success hinges on broader economic reforms.

Context for the Transition

Nigeria's prolonged struggle with high inflation reflects a combination of structural factors, including supply-chain disruptions, currency depreciation, and fiscal pressures. The central bank has historically relied on a mix of direct controls and monetary tools, but policymakers now view inflation targeting as a more transparent and credible framework. The bank's commitment to a two-year timeline signals urgency, though the path depends on external conditions such as global oil prices and geopolitical stability.

Achieving single-digit inflation will require sustained tight monetary policy and coordination with the government on spending and revenue measures. The chosen target band, once agreed upon, will give markets a clear benchmark for interest-rate expectations and help anchor long-term price stability.

The transition to inflation targeting comes after decades of high and volatile price growth in Nigeria, which has undermined long-term investment and eroded household purchasing power. The central bank has previously relied on administrative controls, such as setting interest rate caps and managing exchange rates, but these measures have often failed to anchor expectations. By adopting a formal inflation target, the bank aims to enhance transparency, give the public a clear benchmark, and strengthen its credibility with financial markets. However, achieving single-digit inflation will require sustained fiscal discipline, including reducing the budget deficit and phasing out costly subsidies, as well as continued monetary tightening.

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