CBN eases MPR to 27%, first time since 2020

Monetary Policy

For the first time in five years, the Central Bank of Nigeria (CBN) trimmed its key interest rate, marking a cautious but clear pivot in monetary policy as inflation shows consistent signs of easing.

At the conclusion of its two-day Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, the CBN reduced the MPR by 50 basis points to 27 percent, signalling the beginning of a policy easing cycle aimed at supporting growth without sacrificing hard-won macroeconomic stability.

The committee also delivered a mix of complementary measures, balancing monetary easing with targeted liquidity controls. In a move to stimulate bank lending and support credit to the private sector, the MPC reduced the Cash Reserve Requirement (CRR) for commercial banks to 45%, down from 50%, while retaining the CRR for merchant banks at 16%. At the same time, however, it introduced a 75% CRR on non-Treasury Single Account (TSA) public sector deposits—a tightening tool aimed at mopping up excess liquidity from fiscal injections.

To further enhance monetary policy transmission, the Standing Facilities Corridor (SFC) was widened to ±250 basis points around the MPR. The Liquidity Ratio was held unchanged at 30%.

These policy actions, analysis say, “show the bank’s attempt to fine-tune liquidity conditions—loosening where it supports growth, and tightening where systemic liquidity could pose inflationary risks”.

Olayemi Cardoso, CBN Governor said the committee’s decision was anchored in both recent data and forward-looking projections. “The MPC’s decision to lower the monetary policy rate was predicated on the sustained disinflation recorded in the past five months, projections of declining inflation for the rest of 2025, and the need to support economic recovery efforts,” he said during the post-meeting press briefing.

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According to him, CBN staff project a continued decline in inflation over the coming months, driven by the lagged impact of previous rate hikes, the continued stability of the exchange rate, drop in PMS prices and the expected seasonal drop in food prices as the harvest season progresses.

“The onset of the harvest season is expected to increase local food supply, moderate food prices, and contribute to the overall decline in inflation,” Cardoso emphasised.

He added that the decline in petrol prices, improved crude oil production, and rising capital inflows were also helping to ease inflationary pressures and anchor expectations.

All 12 MPC members voted in favour of the rate cut, reflecting a unified stance from the top of Nigeria’s monetary authority.

These moves suggest the CBN is threading a fine needle—easing just enough to support output while ensuring that inflation risks, especially from excess liquidity in the banking system, remain contained.

“The Committee observed the persistent build-up of excess liquidity in the banking system, resulting largely from fiscal releases,” Cardoso noted. “Being mindful of the need to preserve the prevailing macroeconomic stability, the MPC noted the risks posed by the excess liquidity.”

The decision comes against a backdrop of improving macroeconomic fundamentals. Nigeria’s economy expanded 4.23% year-on-year in the second quarter of 2025, up from 3.13% in Q1, largely buoyed by a sharp rebound in the oil sector.

Gross external reserves climbed to $43.05 billion as of September 11, up from $40.51 billion in July, offering an 8.28-month import cover. The naira has also stabilised after months of volatility, supported by stronger capital inflows and a current account surplus of $5.28 billion in Q2.

While applauding the progress in bank recapitalisation—14 banks have now met new capital thresholds—the MPC emphasised the importance of sustained policy discipline and market reforms to consolidate gains.

“The Committee acknowledged the continued stability of the foreign exchange market and its critical importance in achieving rapid disinflation,” Cardoso said. “It therefore called on the Bank to continue the implementation of policies that would further boost capital inflows and deepen foreign exchange liquidity.”