The International Monetary Fund has called on central banks to exercise caution in cutting interest rates, emphasising that maintaining price stability remains critical amid uneven growth and persistent inflation pressures.
In its latest 13-page World Economic Outlook update, the Fund highlighted that while several economies are experiencing a modest recovery in output, inflationary pressures remain a significant concern.
The IMF noted that central banks must carefully balance the trade-offs between supporting growth and avoiding a resurgence of inflation.
“Monetary policymakers in countries where inflation is at or close to target should rely on a forecast-centred approach,” the report said. “Where economies are experiencing negative demand shocks, a gradual reduction in policy rates may be considered to cushion economic activity, provided risks to price stability objectives are contained.”
The IMF stressed that in regions where inflation remains above target, a more cautious, data-dependent approach is warranted.
“In economies facing adverse supply shocks, policymakers confront complex trade-offs between the risk of a growth slowdown and the risk of persistent inflation. In such cases, further monetary easing should proceed only where there is robust evidence that inflation expectations remain anchored and inflation is returning toward target,” the document added.
While Nigeria’s strong growth outlook positions it as a driver of Sub-Saharan Africa’s expansion, the IMF cautioned that sustaining economic momentum will require disciplined fiscal and monetary policies.
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, while the Monetary Policy Rate has been held steady at 27 per cent since at least November 2025, with the MPC opting for a tight policy to anchor inflation amid elevated risks.
The Fund underscored the importance of central bank independence in safeguarding macroeconomic stability. It warned that any deviation from credible monetary frameworks could risk fiscal dominance, where fiscal pressures undermine monetary policy effectiveness and erode the credibility needed to anchor inflation expectations.
The IMF said it is essential to navigate volatile global conditions. “Central banks must articulate policy intentions transparently and consistently to ensure that expectations remain well-anchored. The independence of monetary authorities, both legal and operational, remains paramount for economic growth and price stability,” the report stated.
It also noted disparities in economic activity and inflation dynamics across regions. Rapid technological investment, for example, is likely to push real neutral interest rates upward at varying degrees across jurisdictions, affecting the potential for rate cuts differently in each economy.
“This heterogeneity underscores the need for tailored, country-specific monetary policy decisions rather than blanket approaches,” the Fund said.
While growth has shown resilience in several emerging markets, the IMF cautioned that sustaining economic expansion will require ongoing vigilance.
The Fund recommended that central banks remain flexible but prudent, signalling that aggressive or preemptive rate cuts could undermine hard-won gains in price stability.
“Policy rate decisions must strike a careful balance. Premature easing risks reigniting inflation, while delayed action in the face of weak demand can slow growth. Central banks must move deliberately, guided by data, to maintain the delicate equilibrium between growth and price stability,” the report noted.
NP