The International Monetary Fund (IMF) has thrown its weight behind the Central Bank of Nigeria’s (CBN) ongoing fight against inflation, calling for stronger fiscal alignment to ensure price stability and defend the naira in an increasingly volatile global environment.

In its 2025 Article IV report released Wednesday, the IMF credited the CBN with “appropriately tightened monetary policy” and said Nigeria’s fight against inflation now requires reinforcement from fiscal policy, especially with inflation still high and external risks mounting.

“The CBN has appropriately tightened monetary policy and should maintain a tight stance going forward considering still high inflation and external pressures,” the Fund said, urging that fiscal policy must play a supporting role.

The Fund noted that CBN’s Monetary Policy Committee (MPC) raised interest rates by a cumulative 875 basis points in 2024, before holding steady at its February and May 2025 meetings.

With real interest rates now positive, the IMF considers the stance “appropriate to guide inflation down, while supporting external stability.”

The tightening, which included raising the cash reserve ratio to 50 percent, widening the monetary policy corridor, and issuing open market operations (OMOs), has helped stabilise the naira and incentivise foreign exchange inflows.

Nigeria’ inflation eased to 22.9 percent in May 2025, but the IMF sees it at 23 percent by year-end and warns that the “fight is far from over.”

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The Fund further noted that transmission of monetary policy remains constrained by Nigeria’s low credit-to-GDP ratio and data gaps.

With Nigeria transitioning to an inflation targeting regime, the IMF urged authorities to announce a formal disinflation path to anchor expectations and improve credibility. The Fund said it is offering technical assistance to support this transition, including help to modernise the CBN’s monetary policy framework and analytical tools.

“A neutral fiscal policy stance in 2025 that complements monetary policy and entrenched disinflation gains would allow reducing the nominal policy rate, while keeping the real policy rate positive,” the IMF said.

It raised concerns that even the fiscal neutrality is not guaranteed, especially as Nigeria’s 2025 budget faces increasing pressure from lower-than-expected oil revenues and delayed fuel subsidy savings.

“Without fiscal discipline, any gains from tight monetary policy could be undermined,” the IMF warned.

It also highlighted the CBN’s major steps towards FX liberalisation, moving from a managed exchange rate regime to a more flexible floating system in 2024, in addition to macro tightening.

The CBN for instance, launched an Electronic FX matching system and introduced an FX code aimed at improving market transparency.

Despite these, the IMF cautioned that fx intervention policy must be clearer and more rules-based. While recognising progress, the Fund urged the CBN to formalise the intervention governance model it developed in collaboration with IMF staff and to focus interventions on excess volatility—not on defending arbitrary levels.

The exchange rate, it said, “should continue to play its role as a shock absorber, noting however, that “under certain circumstances, foreign exchange interventions may play a complementary role.”

Those interventions must not be a substitute for deeper macroeconomic adjustment when needed, it warned, emphasising that Nigeria’s shallow FX market, high exchange rate passthrough to prices, and growing reliance on short-term portfolio flows leave it vulnerable to sudden outflows.

Despite improvements, Nigeria remains exposed to global turbulence. In the first four months of 2025, roughly $2 billion in portfolio investments flowed out of the system with only limited intervention by the apex bank.