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The CBN cut the Monetary Policy Rate by 350 basis points to 23 percent from 26.5 percent, its biggest adjustment in the current cycle.
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Experts say the cut could lower borrowing costs and support investment, but warn that cheaper credit will depend on how quickly banks transmit the reduction.
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The CBN retained CRR at 45 percent for deposit money banks, keeping a major liquidity constraint in place even as the policy rate falls.
September 23, (THEWILL) – The Central Bank of Nigeria’s decision to cut its benchmark interest rate by 350 basis points has opened a new phase in monetary policy, with economists divided over how quickly the reduction will translate into cheaper credit and stronger economic activity.
At its 307th Monetary Policy Committee meeting on September 21 and 22, the CBN reduced the Monetary Policy Rate from 26.5 percent to 23 percent after retaining it at 26.5 percent at its May and July meetings. The latest decision followed a 50-basis-point reduction in February.
CBN Governor Olayemi Cardoso said the committee decided to “reset” the MPR and recalibrate the policy corridor to strengthen monetary policy transmission and reinforce the primacy of the policy rate. The bank said the move was an operational realignment rather than a separate change in its monetary policy stance.
Why CBN Cut Rates
The decision comes against a backdrop of easing inflation and improved financial conditions.
Headline inflation fell to 15.39 percent in August from 15.43 percent in July and 15.91 percent in June, according to the National Bureau of Statistics.
The CBN also recalibrated the Standing Facilities Corridor to +50/-300 basis points around the MPR, from +50/-450 basis points.
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However, the committee retained the Cash Reserve Ratio at 45 percent for deposit money banks, 16 percent for merchant banks and 75 percent for non-TSA public-sector deposits.
The combination means the CBN has reduced the benchmark cost of money while retaining significant liquidity requirements for banks.
What Cheaper Money Could Mean
Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise, said the size of the reduction was largely unexpected but represented a rebalancing of monetary policy after an extended period of tight financial conditions.
He said the decision could benefit the real sector by reducing the cost of capital, improving business cash flows and supporting investment in manufacturing, agriculture, construction and logistics.
“The reduction of the MPR to 23 percent should therefore be viewed not merely as monetary easing, but as an important realignment of the policy rate with prevailing macroeconomic and financial-market conditions,” Yusuf said.
He, however, stressed that the impact would depend on transmission, arguing that banks should progressively reflect the lower policy rate in the pricing of new and existing credit facilities.
Prof. Uche Uwaleke, Director of the Institute of Capital Market Studies and President of the Capital Market Academics of Nigeria, said the cut was justified by moderating inflation, exchange-rate stability, improved foreign-exchange liquidity and rising external reserves.
Why Some Economists Remain Cautious
Marcel Okeke, an economist, questioned the size of the reduction, describing the 350-basis-point move as unprecedented and expressing surprise at the scale of the adjustment.
He also questioned whether the recent understanding between monetary and fiscal authorities could have influenced the decision, while stressing that lower interest rates alone would not guarantee greater access to credit.
“It’s not only interest that banks consider when they want to give their loans,” Okeke said, pointing to wider constraints in Nigeria’s business environment.
Analysts at Cowry Asset Management described the decision as a significant easing of financial conditions, while former Securities and Exchange Commission Director-General Suleyman Ndanusa said it could reduce borrowing costs and ease debt-service pressures.
Ndanusa, however, noted that the unchanged CRR requirements could slow the transmission of cheaper money to businesses and households.
The immediate question, therefore, is whether the 350-basis-point reduction will translate into lower lending rates. If banks respond by repricing credit, the move could support investment and economic activity. If transmission remains weak, the impact on borrowers may be considerably smaller than the headline cut suggests.
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.
