Nigeria’s central bank has reduced its benchmark lending rate for the first time in years, signalling a cautious but consequential shift in monetary policy direction as the country’s economic managers begin to ease the aggressive tightening that defined much of the past two years.
The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, announced on Tuesday that the Monetary Policy Committee had voted to cut the Monetary Policy Rate by 50 basis points, bringing it down from 27 per cent to 26.5 per cent. The decision was reached at the conclusion of the MPC’s latest meeting, with all 11 members present participating in the vote.
The MPR functions as the anchor interest rate for the Nigerian economy, serving as the baseline from which commercial lending rates, interbank borrowing costs, and a broad range of financial transactions are priced. A reduction in the MPR, even by a margin as modest as 50 basis points, carries significant signal value, indicating that the CBN considers inflation pressures sufficiently moderated to begin loosening the monetary conditions that have weighed heavily on credit access and economic activity.
-While the rate cut represented the headline decision of the MPC session, the committee opted to hold all other key monetary policy parameters at their existing levels, reflecting what appears to be a deliberate effort to avoid an overly rapid unwinding of the tight monetary stance the CBN has maintained since 2022.
The Cash Reserve Ratio — the proportion of deposits that commercial banks are required to hold with the CBN rather than deploy as credit — was retained at 45 per cent for commercial banks. Merchant banks will continue to maintain a CRR of 16 per cent, while the ratio applicable to non-Treasury Single Account public sector deposits remains at the significantly higher level of 75 per cent, a figure designed to limit the volume of government funds circulating in the banking system.
The Liquidity Ratio, which sets the minimum proportion of liquid assets that deposit money banks must hold at any given time, was also left unchanged at 30 per cent. The Standing Deposit and Lending Facilities Corridor — the band within which the CBN’s overnight lending and deposit rates are set relative to the MPR — was retained at plus 50 basis points on the upper end and minus 450 basis points on the lower end. Cardoso described these retained parameters as necessary to guide market stability and financial operations.
To fully appreciate the significance of Tuesday’s rate cut, it is necessary to understand the monetary policy environment from which it emerges. Between 2022 and early 2024, the CBN embarked on one of the most aggressive interest rate tightening cycles in the institution’s recent history, driven by the need to combat galloping inflation, stabilise a severely weakened naira, and restore confidence in Nigeria’s monetary framework following years of what many economists described as unconventional and ultimately destabilising policies under the previous CBN leadership.
When Cardoso assumed office as CBN Governor in September 2023 — appointed by President Bola Tinubu as part of a broader economic reform agenda — he inherited an economy grappling simultaneously with double-digit inflation, a fragmented foreign exchange market, a paralysing fuel subsidy removal, and a naira that had lost a substantial portion of its value. The CBN under his watch moved swiftly and decisively, hiking the MPR multiple times in rapid succession. The rate, which stood at 18.75 per cent when Cardoso took over, was driven up to 27.5 per cent by mid-2024 — a cumulative increase of several hundred basis points within roughly a year.
The rationale for this aggressive posture was orthodox: tighter monetary conditions reduce money supply growth, raise the cost of borrowing, slow consumer demand, and in theory bring inflation down over time. The CBN also needed to make naira-denominated assets sufficiently attractive to discourage capital flight and support the exchange rate following the unification of Nigeria’s long-fragmented foreign exchange windows in June 2023.
The human and economic cost of this tightening, however, was considerable. Commercial lending rates for businesses climbed into ranges that many small and medium-scale enterprises described as prohibitive. Consumer credit dried up. Mortgage financing, already underdeveloped in Nigeria, became even more inaccessible. Economic growth slowed under the combined weight of high rates, inflationary pressure, and reduced purchasing power among ordinary Nigerians.
Nigeria’s headline inflation, as measured by the National Bureau of Statistics, had been on a prolonged upward trajectory that peaked at historically elevated levels. Food inflation in particular became a severe social and economic crisis, compounding the hardship imposed by fuel subsidy removal and naira depreciation on ordinary households. At various points in 2024, headline inflation was running well above 30 per cent on an annual basis.
By late 2024 and into early 2025, however, data began to show some moderation in the rate of price increases, even if inflation remained far above the CBN’s own medium-term target. The relative stabilisation of the naira following the FX market reforms, a gradual improvement in food supply conditions, and the lagged effects of previous rate hikes all contributed to a measured easing of inflationary momentum.
It is within this context that the MPC’s decision to begin cutting rates must be understood. A 50 basis point reduction is, by design, a conservative move — large enough to be symbolically significant and to ease some borrowing pressure, but small enough to avoid sending a signal that the CBN is prematurely abandoning its commitment to price stability. The retention of the CRR at 45 per cent for commercial banks — itself an extraordinarily high ratio by global and regional standards — further underscores that the committee is not yet prepared to flood the system with liquidity.
For Nigerian businesses, particularly those in the manufacturing, agriculture, and small enterprise sectors that depend on bank credit for working capital, Tuesday’s cut offers a degree of relief, though the practical transmission of the rate reduction to actual lending rates may take time. Nigerian commercial banks have historically been slow to pass on MPR reductions to their customers, even as they tend to adjust upward relatively quickly when rates rise.
For the federal government and state governments, which rely heavily on domestic bond markets to finance deficits, a lower MPR environment reduces the cost of servicing naira-denominated debt — a significant fiscal consideration given the scale of government borrowing in recent years. The Nigerian Treasury bills and Federal Government of Nigeria bond markets will likely reflect the cut in subsequent auctions.
For ordinary Nigerians with savings in bank accounts, the rate cut works in the opposite direction, potentially reducing the returns available on deposits. However, given that the formal savings rate for most Nigerians remains low, this effect is likely to be felt more acutely by institutional investors and high-net-worth individuals than by the average household.
The foreign exchange and capital markets will also be watching closely. Portfolio investors who have been attracted to Nigeria’s high-yielding fixed income environment may reassess their positions if domestic rates continue to fall, though a 50 basis point cut is unlikely to trigger significant capital outflows on its own.
For Cardoso personally, Tuesday’s announcement represents a careful calibration. His tenure at the CBN has been defined by a willingness to take politically difficult but economically orthodox decisions — including the sharp naira devaluation, the clearance of the FX forward backlog inherited from his predecessor, and the sustained rate hikes that drew criticism from labour unions, manufacturers, and politicians alike.
