Nigeria’s Central Bank Cuts Interest Rates: A Cautious Step Towards Economic Revitalization
Nigeria’s Central Bank (CBN) recently announced a reduction in its benchmark Monetary Policy Rate (MPR) too 26.25%, marking a pivotal shift in monetary policy after a five-year period of holding steady, or even increasing, rates. This decision, the first under the leadership of Governor Cardoso, signals a cautious optimism regarding the nation’s economic trajectory, but also highlights the complex challenges that remain. As a seasoned observer of the nigerian economy, I’ll break down what this change means, the factors driving it, and the reactions from key stakeholders.
A Historic Shift, But From a High Base
The 1.25 percentage point cut, while described as “historic” by Cardoso, needs to be viewed within the context of Nigeria’s historically high interest rate environment.Even at 26.25%, Nigeria’s MPR remains one of the highest on the African continent, significantly above recent cuts implemented by Ghana (down 350 basis points to 21.5%) and Kenya (reduced to 9.5% in August). The previous rate of 27.5% was implemented to combat soaring inflation, a battle that, while not entirely won, is showing encouraging signs of easing.
Indeed,the decision was underpinned by positive macroeconomic indicators.July saw headline inflation fall to 24.05%,with food inflation decreasing to 21.87% and core inflation easing to 20.33%. Furthermore,Nigeria’s GDP experienced robust growth in the second quarter of 2025,expanding by 4.23% – a significant jump from the 3.13% recorded in the first quarter. This growth was largely fueled by a strong rebound in the oil sector, which saw expansion surge from 1.87% to 20.46% over the same period. Contributing to this positive outlook is a rise in foreign reserves, reaching $43.05 billion as of September 11th,providing an import cover of 8.28 months.
Beyond the MPR: A Multifaceted Approach
The CBN’s actions weren’t limited to the MPR. The Monetary Policy Committee (MPC) also implemented several complementary measures:
* Standing facilities corridor Adjustment: Adjusted by +250/-250 basis points.
* Cash Reserve Requirement (CRR): increased to 45% for commercial banks (16% for merchant banks), with a significant 75% CRR imposed on non-TSA public sector deposits.
* Liquidity Ratio: Remained unchanged at 30%.
these adjustments reveal a nuanced strategy. While lowering the MPR aims to stimulate lending, the increased CRR – particularly on public sector deposits – is designed to manage liquidity and potentially curb government spending. This balancing act underscores the CBN’s commitment to both fostering growth and maintaining macroeconomic stability.
Mixed Reactions: A Reflection of Complex Needs
The response from the Nigerian business community has been predictably mixed. While the rate cut was generally welcomed,many expressed concerns that it doesn’t go far enough.
* Manufacturers Association of Nigeria (MAN): Director-General Segun Ajayi-Kadir rightly pointed out that manufacturers require loans at rates no higher than 5% to truly benefit. The current MPR, even after the cut, makes accessing affordable credit a significant hurdle.
* Nigeria Employers’ Consultative Association (NECA): Director-General Adewale Oyerinde cautioned that the high CRR could negate the positive effects of the lower MPR, limiting banks’ lending capacity.
* Small Business Owners: Dr. Femi Egbesola of the association of Small Business Owners of Nigeria echoed this sentiment, emphasizing that access to finance remains the biggest challenge for small and medium-sized enterprises (SMEs).
* Private Sector Advocacy: Dr. Muda Yusuf of the Center for the Promotion of Private Enterprise advocated for a combined approach – lower MPR and reduced CRR – to maximize lending capacity and stimulate economic activity.He also rightly highlighted the need for broader fiscal reforms and infrastructure improvements to address underlying production costs.
* Labor Perspective: The Nigeria Labour Congress acknowledged the positive step but reiterated that 26.25% remains too high, hoping cheaper credit will translate into job creation and economic expansion.
Economists Weigh In: A Signal of Intent
Economists share a similar cautious optimism. Professor Sheriffdeen T
