Cardoso flags Middle East war as risk to inflation, rate cut

Nigeria’s central bank governor said the escalating conflict involving the United States, Israel, and Iran could influence future interest-rate decisions, warning that higher oil prices may fuel inflation even as they bolster export earnings.

In an interview with the Financial Times, Governor Olayemi Cardoso said geopolitical shocks would most likely be transmitted to Nigeria through energy prices and global financial conditions, two variables closely watched by policymakers as they assess the next move on borrowing costs ahead of a crucial meeting in May.

“Higher oil prices can support export earnings and strengthen the balance of payments, but they can also feed into domestic inflation through fuel, transport, and imported goods,” Cardoso said, highlighting the trade-offs facing Africa’s largest oil producer.

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Brent crude has climbed more than $100 a barrel in recent weeks as tensions in the Middle East deepened, raising concerns about supply disruptions.

For Nigeria, where oil accounts for the bulk of foreign-exchange earnings, a sustained rally typically improves fiscal and external buffers. But it also risks reigniting price pressures in an economy that has only recently begun to see inflation moderate after a prolonged surge.

Headline inflation slowed for the 12th consecutive month in February 2026 to 15.06 percent, even as the naira strengthened to N1,345 per dollar after weeks of mild swings, triggered by the rising tension in the Middle East.

The governor, however, signaled that policymakers are alert to the risk that higher global energy costs could reverse progress made in stabilising prices. Imported inflation, particularly through refined fuel and other dollar-denominated goods, remains a key vulnerability despite ongoing foreign-exchange reforms.

Cardoso also pointed to the second channel of transmission – global risk sentiment. Heightened geopolitical uncertainty tends to dampen investor appetite for emerging and frontier markets, potentially slowing capital flows and tightening financial conditions.

For Nigeria, which has worked to restore foreign investor confidence after years of currency distortions and capital controls, any pullback in portfolio inflows could test recent gains in the naira and external reserves. “The precise impact will depend on how events evolve,” Cardoso said.

Still, the governor struck a note of confidence about Nigeria’s preparedness to weather external shocks.

Over the past two years, the central bank has rebuilt policy buffers, strengthened external reserves, and restored greater functionality to the foreign-exchange market, he said.

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Monetary policy has also returned “to a more orthodox footing,” a reference to the bank’s aggressive tightening cycle aimed at curbing inflation and stabilising the currency.

The comments suggest the Central Bank of Nigeria is unlikely to rush into easing even if oil prices deliver short-term windfalls. Instead, policymakers appear focused on guarding against second-round inflation effects and shielding the economy from volatile capital movements.

Nigeria’s benchmark interest rate stands at 26.50 percent, following a series of hikes designed to tame price growth and anchor expectations. Any renewed spike in inflation driven by global oil markets could complicate the path toward eventual rate cuts that investors have begun to anticipate.