CBN eyes growth, FPIs in cautious 50bps rate cut

Central Bank of Nigeria

The Central Bank of Nigeria (CBN) on Tuesday cautiously reduced its benchmark interest rate, the Monetary Policy Rate (MPR), by 50 basis points to 27 per cent from 27.50 per cent, in a move aimed at boosting economic growth and sustaining foreign portfolio investments in the country.

Olayemi Cardoso, Governor of the Central Bank of Nigeria (CBN), announced the decisions at the end of the two-day Monetary Policy Committee (MPC) meeting in Abuja, which was attended by 12 members of the committee.

The committee delivered a set of complementary measures that balanced monetary easing with targeted liquidity controls. In order to stimulate bank lending and support credit to the private sector, the MPC reduced the Cash Reserve Requirement (CRR) for commercial banks to 45 per cent, down from 50 per cent, while retaining the CRR for merchant banks at 16 per cent. At the same time, however, it introduced a 75 per cent CRR on non-Treasury Single Account (TSA) public sector deposits, which serves as a tightening tool to mop up excess liquidity from fiscal injections.

To further strengthen monetary policy transmission, the Standing Facilities Corridor (SFC) was widened to plus or minus 250 basis points around the Monetary Policy Rate (MPR). Meanwhile, the Liquidity Ratio was held unchanged at 30 per cent.

Commenting on the outcome of the meeting, Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), noted that the policy easing comes at a time when the Nigerian economy has recorded five consecutive months of declining inflation, an indication that previous tightening measures are yielding results.

He observed that having restored some measure of macroeconomic stability and slowed inflationary pressures, the MPC’s shift toward supporting growth is both logical and timely. He added that high interest rates in recent quarters have constrained private sector credit, increased the cost of funds, and weighed heavily on business expansion. According to him, the reduction of the MPR and CRR demonstrates the CBN’s deliberate effort to improve liquidity conditions, lower borrowing costs, and unlock capital for productive sectors of the economy.

Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, described the move as the first rate cut by the CBN in five years. She explained that the policy rate was reduced by 50 basis points to 27 per cent, following a notable pace of year-on-year disinflation recorded in August. She also highlighted changes in the policy transmission mechanism, noting that the corridor around the MPR was adjusted to plus or minus 250 basis points from the previous +500/-100 basis points.

This adjustment, she explained, lowers the rate on the CBN’s Standing Lending Facility to 29.5 per cent from 32.5 per cent, while the Standing Deposit Facility rate was cut to 24.5 per cent from 26.5 per cent. She observed that while the CRR was reduced to 45 per cent from 50 per cent (excluding merchant banks), the CRR on non-TSA public sector deposits was increased to 75 per cent, compared to the previous 50 per cent.

According to her, this new requirement sends a strong policy signal but may not have significant tightening effects since most liquidity overhang in the system stems from maturing Open Market Operations (OMOs) rather than public sector deposits. She emphasised that the evolution of CBN’s OMO policy will be a more important indicator of the monetary stance going forward. Khan added that the CBN sees sustained disinflation in the months ahead as a result of previous policy choices, hinting at the possibility of further easing in the future.

Bismarck Rewane, managing director/CEO of Financial Derivatives Company (FDC), also described the meeting as a positive one, characterising the decisions as bold and aggressive. He explained that the introduction of the new CRR on non-TSA public deposits was clearly targeted at sterilising excess liquidity from the Federation Account Allocation Committee (FAAC) and the Nigerian National Petroleum Company (NNPC) funds.

The implications for the economy are significant. According to Yusuf, the combined effect of the lower MPR and reduced CRR will improve credit conditions by expanding banks’ capacity to create credit, lowering lending rates, and making financing more accessible, especially for small and medium-sized enterprises (SMEs). This easing is expected to encourage fresh investments, support business expansion, and boost capacity utilisation in the real sector, which will in turn stimulate output growth and create jobs.

Yusuf said a more accommodative monetary environment will also strengthen financial intermediation, enabling banks to better mobilise savings and channel them into productive investments, thereby reinforcing financial deepening and economic growth.

At the same time, the decision to impose a 75 per cent CRR on non-TSA public sector deposits serves as a safeguard to prevent excessive fiscal-driven liquidity injections from destabilising the financial system. This balancing act between easing for private sector growth and tightening for fiscal discipline underscores the MPC’s attempt to align monetary policy with Nigeria’s broader economic stability and growth objectives

Yusuf described the MPC’s decision as “a strategic and well-timed policy shift from a phase of stabilization to a phase of growth accelerator. If sustained and complemented by appropriate fiscal and structural reforms, these measures will stimulate economic growth and job creation, improve private sector performance and output, boost government revenues through an expanded tax base, and moderate inflation sustainably in the medium to long term. We at the CPPE regard this as a step in the right direction toward building a more resilient, inclusive, and growth-oriented Nigerian economy.”