Inflation, policy inconsistency can destabilise economic reforms, analysts warn

By Peter Egwuatu

Analysts have warned that the rise in inflation, policy inconsistency, and volatile exchange rate, among other factors, can destabilise the ongoing economic reforms, which have started yielding fruits.

However, the analysts stated that the Nigeria’s capital market is expected to maintain its positive momentum in the second half of 2026, supported by stronger macroeconomic fundamentals, banking sector recapitalisation, improved foreign exchange stability and the anticipated listing of Dangote Refinery, despite lingering inflationary pressures and global geopolitical uncertainties.

This projection formed the highlight of presentations delivered by Professor Uche Uwaleke, President, Capital Market Academics of Nigeria, during a webinar organised by  Arthur Steven Asset Management Limited (ASAM), titled “Mid-year macroeconomic review and investment outlook for H2 2026”.

Analysts and investment experts noted that the Nigerian economy has shown remarkable resilience in the first half of the year following major structural reforms, including foreign exchange liberalisation, fuel subsidy removal and monetary tightening.

According to Uwaleke, the Nigerian Exchange (NGX) recorded one of its strongest first-half performances in history, with the All-Share Index rising by about 47 per cent to close June at over 229,000 points after reaching an all-time high of more than 252,000 points in May. The rally translated into approximately N47 trillion in investors’ wealth, driven largely by strong corporate earnings, banking recapitalisation and renewed domestic institutional participation.

Analysts at ASAM observed that improved investor confidence was supported by greater exchange rate stability, stronger external reserves of over $51 billion and increased pension fund participation following the National Pension Commission’s revised investment guidelines.  

Uwaleke, however, cautioned that inflation remains a key concern after the earlier disinflation trend was interrupted by rising global oil prices triggered by the Middle East crisis.

“Headline inflation, which declined to 15.06 per cent in February, rose steadily to 15.93 per cent in May as higher fuel and transportation costs filtered into food prices” he noted.

The analysts at ASAM  and Uwaleke maintained   that despite the inflation risks, there is a constructive outlook for equities, citing expectations of sustained corporate earnings growth, continued banking sector expansion, insurance recapitalisation and possible inclusion of Nigeria in major frontier market indices.

Uwaleke described the successful completion of the banking recapitalisation exercise as one of the most significant financial sector achievements in recent years, noting that 33 banks collectively raised about N4.65 trillion in fresh capital, strengthening the industry’s capacity to support economic growth.  

He also identified the implementation of the T+1 settlement cycle, the Investments and Securities Act (ISA) 2025 and ongoing capital market reforms as measures capable of enhancing market efficiency and attracting more foreign investors.

Looking ahead, the analysts at ASAM projected a favourable environment for equities, particularly banking, oil and gas, industrial goods and telecommunications stocks, while maintaining that fixed-income securities would continue to offer attractive yields amid the Central Bank of Nigeria’s cautious monetary policy stance.

The investment firm recommended a diversified portfolio comprising 50 per cent equities, 20 per cent fixed income, 20 per cent alternative investments and 10 per cent dollar-denominated assets and cash to balance growth opportunities with risk management.

However, the analysts warned that investors should remain cautious of downside risks, including renewed exchange rate volatility, persistent inflation, reversal of foreign portfolio inflows, geopolitical tensions and uncertainties associated with the build-up to the 2027 general elections.

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