September 27, (THEWILL) – The Central Bank of Nigeria’s decision to cut its Monetary Policy Rate by 350 basis points, from 26.5 percent to 23 percent, is one of the biggest changes in the country’s monetary policy settings this year. But the headline reduction does not automatically mean that borrowing costs for businesses and households will fall by the same amount.
The more important question is how much of the policy adjustment will be transmitted into bank lending rates, private-sector credit, government borrowing costs, deposit rates and ultimately economic activity.
There is already evidence that some of these markets were moving before the Monetary Policy Committee’s September 21–22 meeting. The average maximum lending rate in the banking sector fell to 29.19 percent in August from 33.16 percent in July, according to Central Bank of Nigeria data. The August rate was the lowest recorded this year, after reaching 35.17 percent in February.
That means lending rates had fallen by almost four percentage points in one month before the MPR was reduced.
The new 23 percent policy rate therefore comes into an environment where the cost of credit was already beginning to decline. The test now is whether the latest decision accelerates that movement or whether the transmission from monetary policy to bank lending remains weak.
This distinction matters because the MPR is a policy benchmark, not the rate at which most Nigerian businesses borrow from commercial banks. Banks price loans based on several factors, including their funding costs, liquidity conditions, credit risk, operating costs, and expected returns.
The experience of previous rate adjustments also suggests that the relationship between the policy rate and lending rates is not one-for-one. Research cited in recent analysis of Nigeria’s monetary transmission indicates that a 100-basis-point increase in the MPR can produce a much larger increase in lending rates, while an equivalent reduction tends to pass through more slowly.
That makes the next few months particularly important for manufacturers, traders, property developers, farmers and other businesses whose investment decisions depend on the cost and availability of bank credit.
The second number to watch is private-sector credit.
Credit to the private sector increased for the third consecutive month in August, reaching N84.55 trillion from N83.43 trillion in July. The N1.13 trillion monthly increase represented 1.35 percent growth. Compared with August 2025, private-sector credit was up N8.67 trillion, or 11.42 percent.
The direction is encouraging, but the level tells a more complicated story. August’s N84.55 trillion was still N10.06 trillion below the N94.61 trillion recorded in February, which was the highest level among the 2026 observations supplied by the CBN database. Private-sector credit had risen from N81.04 trillion in May to N83.26 trillion in June, N83.43 trillion in July and N84.55 trillion in August.
In other words, credit is recovering, but it has not yet returned to its February level. That gives the rate cut a measurable test. If lower policy rates translate into cheaper bank funding and stronger demand for loans, private-sector credit should begin growing at a faster pace in the months ahead. The composition of that credit will matter just as much as the headline number.
The CBN’s Q1 2026 data showed significant differences across sectors. Manufacturing credit fell from N6.57 trillion in January to N5.77 trillion in March, while oil and gas lending declined from N10.91tn to N10.58 trillion. In contrast, power and energy credit rose from N1.30 trillion to N1.61 trillion, while real-estate lending increased from N4.67 trillion to N6.29 trillion. Trade and general commerce credit reached N6.29tn, while finance, insurance and capital-market lending stood at N9.80 trillion in March.
This means that an increase in aggregate private-sector credit will not necessarily mean that productive sectors are receiving a larger share of bank lending.
The third transmission channel is government borrowing. Government credit fell to N32.70tn in August from N33.92tn in July, according to CBN data. It had stood at N40.03 rilliotn in June, meaning government credit declined by N7.33 trillion in just two months.
That decline is occurring alongside falling Treasury-bill yields.
The stop rate on the 364-day Treasury bill fell from 17.59 percent on August 12 to 17.15 percent on August 26, 16.84 percent on September 2 and 16.62 percent on September 9. That represents a 97-basis-point decline in less than a month.
Demand, however, remained strong. At the September 9 auction, the CBN received more than N2.5tn in subscriptions for the N500bn one-year bill offer.
This creates an important question for the rate-cut cycle: how far can government borrowing costs fall as monetary conditions become less restrictive?
Lower yields could eventually reduce the cost of new domestic borrowing for the Federal Government. But they also change the return available to banks, pension funds, asset managers and individual investors that have traditionally relied on government securities.
For savers, the adjustment moves in the opposite direction.
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A lower interest-rate environment generally reduces the returns available on deposits and other short-term fixed-income instruments. Following the new MPR, the minimum savings rate is expected to fall to about 6.9 per cent from 7.95 percent, while the Standing Deposit Facility was recalibrated to 20 percent.
The result is a potential redistribution within the financial system: borrowers stand to benefit if lending rates fall, while savers and investors in lower-risk instruments may have to accept lower returns.
But the biggest economic test is whether cheaper money produces more investment and output rather than simply changing the price of existing financial assets.
The CBN has already reported stronger demand for corporate and secured loans and lower default rates across major lending categories. Yet businesses have continued to complain about the affordability and availability of credit. The manufacturing sector provides a useful example. Bank credit to manufacturers fell from N8.53 trillion in December 2024 to N6.61 trillion in December 2025, a decline of N1.92 trillion.
If the rate cut works through the banking system, one of the clearest signs should therefore be renewed credit expansion in sectors capable of increasing production, employment and investment.
There is also a broader liquidity question.
The CBN’s August data showed M3 money supply rising to N139.38 trillion from N138.78 trillion in July, while M2 increased to N139.37 trillion from N138.77 trillion. Net domestic credit, however, edged down to N117.25 trillion from N117.35 trillion in July and N123.29 trillion in June.
This is important because the CBN has simultaneously been trying to improve monetary-policy transmission and maintain control over liquidity. A lower policy rate does not mean the central bank intends to flood the financial system with unrestricted liquidity.
Indeed, the MPC described the 23 percent MPR as an operational reset intended to strengthen monetary-policy transmission and restore the MPR’s role as the principal signal for monetary conditions. The recalibration of the Standing Facilities Corridor was also described as an operational realignment rather than a separate change in the underlying monetary-policy stance.
That distinction could determine how the rate cut ultimately affects the economy.
If banks reduce lending rates, private-sector credit accelerates, government borrowing costs decline, and businesses increase investment, the reduction will have moved beyond the financial markets into the real economy.
If, however, the MPR falls sharply while lending rates, sectoral credit and business investment barely respond, the gap between the policy rate and the actual cost of money will remain.
For now, the baseline is clear. Nigeria has a 23 percent policy rate, a 29.19 percent average maximum lending rate, N84.55 trillion in private-sector credit, a 16.62 percent one-year Treasury-bill stop rate and N32.70tn in government credit.
Those numbers provide the starting point.
The real measure of the September rate cut will be where they stand over the next three to six months.
Ogochukwu Onwaeze is a writer specializing in business and economic journalism. At THEWILL News Media, she translates market trends, financial developments, and policy shifts into clear and engaging stories.
