After five years, the Central Bank of Nigeria (CBN) has reduced its key interest rate, signalling a cautious shift in its monetary stance as inflation shows steady improvement.
At the end of its two-day Monetary Policy Committee (MPC) session in Abuja on Tuesday, the CBN lowered the MPR by 50 basis points to 27 per cent. This adjustment marks the outset of a gradual easing phase designed to boost economic growth while preserving macroeconomic stability.
The benchmark rate was last reduced in September 2020, from 12.5 per cent to 11.5 per cent.
The recent cut aims to stimulate economic growth amid slowing inflationary pressure and improved macroeconomic stability.
Alongside the rate cut, the committee introduced measures to manage liquidity carefully, balancing the easing move with targeted controls. These included a reduction in the Cash Reserve Requirement (CRR) for commercial banks to 45 per cent, down from 50 per cent, and retention of 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—a tightening tool aimed at mopping up excess liquidity from fiscal injections.
Employers and economists welcomed the CBN decision to reduce the benchmark interest rate, describing it as a timely and necessary move to stimulate economic growth after a prolonged period of aggressive monetary tightening.
The director general of the Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, praised the policy shift but emphasised the need for complementary fiscal reforms, including exchange rate stability and improvements in the agricultural and energy sectors, to fully realise the benefits for businesses and households.
Similarly, economic experts like Dr Ayo Teriba and Dr Muda Yusuf highlighted the significance of the easing measures, noting the encouraging decline in inflation and the potential for increased liquidity to support investment and job creation.
While most stakeholders see the rate cut as a positive signal toward growth acceleration, some caution remains, with experts like Dr Paul Alajre warning against overinterpreting inflation trends due to methodological changes, and others urging the government to pair monetary easing with sustained reforms to create an enabling environment for inclusive economic progress.
The apex bank also introduced a 75 per cent Cash Reserve Requirement (CRR) on deposits of government institutions not domiciled in the Treasury Single Account (TSA), as part of measures to tighten liquidity and preserve macroeconomic stability.
According to a circular issued under the administration of late former President Muhammad Buhari, the exempted government agencies are ” profit-oriented government business entities that pay dividends to the Federal Government of Nigeria.”
The affected MDAs include Ministry of the Federal Capital Territory Territory, some universities, Bank of Industry (BoI), Nigeria Railway Corporation, Federal Mortgage Bank of Nigeria, Bank of Agriculture, National Communication Satellite Limited, Galaxy Backbone Ltd and Ajaokuta Steel Company Ltd and Nigerian Export – Import Bank.
Cardoso said introducing a 75 per cent CRR on non-TSA public sector deposits was aimed at addressing excess liquidity in the banking system, which has been fuelled by increased fiscal releases from improved government revenues.
“The Committee further introduced a 75 per cent CRR on non-TSA public sector deposits for enhanced liquidity management,” CBN Governor Olayemi Cardoso said yesterday at the end of the Monetary Policy Committee (MPC) meeting, which held in Abuja on September 22–23 with all 12 members in attendance.
According to Cardoso, the MPC reduced the Monetary Policy Rate (MPR) by 50 basis points to 27 per cent, citing five consecutive months of disinflation and improved macroeconomic stability.
The Standing Facilities Corridor was adjusted to +250/-250 basis points around the MPR, while the CRR for commercial banks was retained at 45 per cent and that of merchant banks at 16 per cent. Liquidity ratio also remains unchanged at 30 per cent.
The MPC also adjusted the Standing Facilities corridor to improve the efficiency of the interbank market and strengthen monetary policy transmission.
The CBN Governor said the bank is targeting a reduction in inflation figure to a single-digit. He said the bank is not ummindful of the coming election year that could cause a spike in inflation rate and a fluctuation in exchange rate.
According to Cardoso, gross external reserves remained robust at $43.05 billion on September 11, 2025, compared with $40.51 billion at the end of July 2025, with an import cover of 8.28 months.
Similarly, he said “the Q2 2025 current account balance recorded a significant surplus of $5.28 billion compared with $2.85 billion in Q1 2025.”
“The committee observed that the stability in the macroeconomic environment provides room for monetary policy to support economic growth, but we must remain vigilant to guard against excess liquidity risks,” the governor stated.
The MPC expressed satisfaction with the prevailing stability in key indicators, including declining inflation, stable exchange rates, improved external reserves, and stronger output growth. Nigeria’s economy expanded by 4.23 per cent in the second quarter of 2025, driven largely by a rebound in the oil sector, which grew by 20.46 per cent.
The committee’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.
The MPC also adjusted the Standing Facilities corridor to improve the efficiency of the interbank market and strengthen monetary policy transmission.
The Committee further introduced a 75 per cent CRR on non-TSA public sector deposits for enhanced liquidity management.
For the MPC, the deceleration in inflationary pressure is underpinned by monetary policy tightening, exchange rate stability, increased capital inflows, and surplus current account balance, which have helped to broadly anchor inflation expectations.
Other factors, he said, contributed to the deceleration, including the continued moderation in the price of Premium Motor Spirit (PMS) and the notable increase in crude oil production. In the view of the Committee, the stability in the macroeconomic environment offered some headroom for monetary policy to support economic recovery.
Employers, Economists hail rate cut, urge complementary fiscal reforms
Meanwhile, the director general of the Nigeria Employers’ Consultative Association (NECA), Adewale-Smatt Oyerinde, has commended the Central Bank of Nigeria (CBN) for reducing the Monetary Policy Rate (MPR) by 50 basis points to 27.00 per cent at the 302nd meeting of its Monetary Policy Committee (MPC).
The MPC also announced other measures, including adjusting the Cash Reserve Ratio (CRR) to 45 per cent for Deposit Money Banks, retaining 16 per cent for Merchant Banks, introducing a 75 per cent CRR on non-TSA public sector deposits, retaining the Liquidity Ratio at 30 percent, and adjusting the Asymmetric Corridor to +250/-250 basis points around the MPR.
Oyerinde noted that the decision followed a steady decline in inflation, with headline inflation easing to 20.12 per cent in August from 21.88 per cent in July, according to the National Bureau of Statistics. He said the moderation in inflation allows policymakers to balance price stability with growth stimulation.
However, he cautioned that the modest MPR reduction’s benefits would depend on how effectively it translates into the real economy.
According to him, lower credit costs could help businesses access affordable financing, expand investments, and create jobs, but the high CRR and other liquidity restrictions may limit these outcomes.
The NECA DG observed that food inflation remains elevated at 21.87 percent, placing pressure on households and eroding disposable incomes. He added that high operating costs driven by raw materials, energy, and logistics continue to threaten local businesses, while international investors still require consistent reforms and policy stability to commit to Nigeria.
Oyerinde called on the government to complement the MPC’s decision with broader measures, including stabilising the exchange rate to curb imported inflation, improving security in farming communities, expanding agricultural mechanisation, and addressing energy, transport, and regulation bottlenecks.
Commenting, the chief executive of Economic Associates, Dr. Ayo Teriba, noted that after eight months of a decelerating inflation trend, everybody expected that the MPC would begin to ease the MPR because it had tightened aggressively since starting to meet in 2024.
He said that after tightening in consecutive meetings, they have been holding the rate steady in consecutive meetings since the beginning of this year.
“In all the meetings in 2024, they tightened, and in 2025, they’ve held thus far. And now they eased. Everybody thought a bit of easing was overdue, given that they were tightening because of accelerating inflation and unstable exchange rates, but those became issues that we left behind in 2024. I think we made a New Year’s wish that in 2025, we don’t want unstable exchange rates and accelerating inflation. We are now at the end of the third quarter, and inflation has been decelerating. The latest icing on the cake is that GDP growth is accelerating. Some easing to support growth is in order; so they did some slight easing, with bigger easing on the corridor, which is a drop from 500 basis points to 250. That’s the bigger and they did 50 basis points on the MPR itself. That’s a total of 300 basis points, if you add the 250 in the corridor to the 50 on the MPR. And they also eased CRR, but hiked it on non-TSA deposits. So let’s see and hope that that is trending growth, and not hot inflation,” he said.
Also reacting to the outcome of the meeting, Director of the Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, hailed the CBN’s policy shift, saying it signals a deliberate pivot toward supporting growth and investment.
“This marks a significant policy shift toward supporting growth and investment, following an extended period of aggressive monetary tightening to rein in inflation. The decision represents a strategic and well-timed policy shift from a phase of stabilisation to a phase of growth accelerator.
“The policy easing comes at a time when the Nigerian economy has recorded five consecutive months of declining inflation, signalling that previous tightening measures are yielding results. Having restored a measure of macroeconomic stability and slowed inflationary pressures, the MPC’s pivot toward growth is both logical and timely.
“High interest rates in recent quarters have significantly constrained private sector credit, increased the cost of funds, and weighed on business expansion. By lowering the MPR and CRR, the CBN is deliberately working to improve liquidity conditions, reduce borrowing costs, and unlock capital for productive sectors of the economy.
According to him, the measures will expand banks’ lending capacity, boost new investments, and enhance financial intermediation, while the 75 per cent CRR on non-TSA deposits is a prudent safeguard against liquidity shocks from government spending.
Similarly, Professor Michael Obadan, an economist and former member of the MPC, described the policy easing as “a welcome development” that will support real sector growth after months of restrictive monetary policy.
o start easing the tight monetary policy stance. However, people have argued all along that reliance on monetary policy rates alone to fight inflation is not ideal.
“It was high time the MPC began to ease the monetary policy stance. For a long time, it had become too tight and constraining, particularly for real sector development. With high interest rates compared to rates of return in the public sector, businesses have been highly constrained. So, it is a welcome development that the signal has now been given.”
He particularly welcomed the reduction in CRR for commercial banks, stressing that the previous 50 per cent requirement was “too constraining” for the banking sector.
“For every deposit received, half of it was sterilised at the central bank, yet banks still had to pay interest to depositors. It was a double jeopardy.
“The reduction to 45 per cent is a relief. But the 75 per cent CRR on non-TSA public deposits suggests the monetary authorities are trying to mop up excess liquidity from public agencies outside the TSA framework,” he explained.
Also speaking, partner, and chief executive of SPM Professionals, Dr. Paul Alaje, punched holes in the decision, citing that people say the CBN should cut rates because inflation is reducing.
”In econometrics, can you say inflation is reducing, the answer is no. And that does not mean inflation is increasing either. Why? The base year has been adjusted. Until we get to year on year, from the month with which we started that adjustment, it would be wrong to take a decision that varies what MPR will be.
“However, to test the waters, if CBN will do it not more than 50 basis points, it might be allowable, but to do it above 50 basis points, in fact, would confirm that we are manipulating the numbers.
“Currently, what we are doing is inflation targeting, so you have to be sure that the number is what it is. Today, 10 per cent disappeared from the inflation number, not because it reduced or increased, but because we changed the methodology. Do you change the goalpost when you are 30 minutes into a game?” he asked.
Also, Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto & Co, noted that the MPC decision largely signals an accommodating monetary stance.
“This follows a similar move by the Central banks of developed countries and even within the African continent,” he said.
