October 5, (THEWILL) – The Central Bank of Nigeria’s decision to cut the Monetary Policy Rate (MPR) from 26.5 per cent to 23 per cent is a significant development for an economy that has endured an exceptionally tight monetary environment. The 350-basis-point reduction, announced after the September 21–22, 2026 meeting of the Monetary Policy Committee, was accompanied by a recalibration of the Standing Facilities Corridor, while the Cash Reserve Ratio for deposit money banks remained at 45 per cent.
But the real test of this decision is not what happens to the MPR. It is what happens to the cost and availability of credit for businesses, particularly manufacturers, farmers, processors, transport operators, construction companies and millions of small and medium-sized enterprises.
For too long, Nigeria’s real sector has operated under the weight of expensive credit. When the benchmark rate rises, commercial lending rates do not merely become an inconvenience; they alter business calculations. Projects are abandoned, expansion plans are postponed, working capital becomes prohibitively expensive and businesses pass higher financing costs to consumers through higher prices. That is why the latest rate reduction should not be treated simply as a monetary-policy statistic. It should be viewed as an opportunity to begin restoring the productive capacity of the economy.
The CBN itself has acknowledged a fundamental problem: the previous MPR had become disconnected from actual market rates, weakening its effectiveness as the principal signal of monetary policy. The September decision was therefore described as an operational realignment intended to strengthen policy transmission. This distinction matters. A reduction in the policy rate does not automatically translate into cheaper bank loans. Nigerian businesses can only benefit meaningfully if the lower benchmark is transmitted through the banking system into lending rates.
The danger is that the economy could celebrate a 350-basis-point reduction while manufacturers continue borrowing at punishing rates. That would defeat the broader economic purpose of monetary easing. The CBN’s own research underscores the importance of this transmission mechanism. A CBN study found that contractionary monetary-policy shocks can reduce output and private-sector credit, while recommending stronger attention to supply-side constraints, deeper financial markets and alternative funding sources. Another CBN study identified credit supply and accessibility to the private sector as a crucial link between monetary policy and the real economy.
The implication is clear: the rate cut must move from the financial markets into factories, farms, warehouses, shops and construction sites. The government and the CBN must therefore resist the temptation to regard the 23 per cent MPR as an achievement in itself. The objective should be measurable improvement in the effective cost of borrowing.
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Banks also have a responsibility. Recapitalisation is expected to strengthen their capacity to support a larger economy, but stronger balance sheets will mean little if banks remain excessively conservative toward productive enterprises. Lending must be based on credible risk assessment rather than blanket risk aversion.
Government must address the structural risks that make lending expensive in the first place. Unreliable electricity, poor transport infrastructure, insecurity, multiple taxation, foreign-exchange volatility and weak contract enforcement all increase the probability of business failure—and therefore the risk premium embedded in bank loans. A manufacturer borrowing at a lower interest rate but spending heavily on diesel and logistics has not necessarily received cheaper capital in economic terms.
The fiscal authorities must therefore complement monetary easing with supply-side reforms. Public spending should prioritise power, roads, rail, industrial infrastructure and security around productive corridors. Development-finance institutions should provide longer-tenor funding for sectors where commercial banks struggle to match the maturity of investments. Most importantly, the government must avoid policies that recreate inflationary pressures and force the CBN back into aggressive monetary tightening.
The present rate cut offers Nigeria a window. It should be used to move from an economy dominated by defensive monetary management to one increasingly driven by production, investment and productivity.
