morgANABLE economy watch
The MPC noted that aligning the MPR more closely with observable market rates would enhance policy credibility and effectiveness
KaNo—
The Monetary Policy Committee of the Central Bank of Nigeria has cut the benchmark interest rate by 350 basis points to 23 per cent from 26.5 per cent, triggering fresh demands from the Organised Private Sector for cheaper loans and improved access to credit.
The decision, announced on Tuesday by the CBN Governor, Olayemi Cardoso, at the end of the committee’s 307th meeting in Abuja, marks one of the most significant downward adjustments in recent years.
Cardoso said, “The committee decided as follows: reset the monetary policy rate at 23 per cent.”
The MPC also recalibrated the standing facilities corridor to +50 and -300 basis points around the Monetary Policy Rate, while retaining key liquidity control measures.
The Cash Reserve Requirement was left unchanged at 45 per cent for deposit money banks, 16 per cent for merchant banks and 75 per cent for non-Treasury Single Account public sector deposits.
The latest move follows two consecutive policy holds in May and July, after a modest 50 basis point reduction in February.
Despite the cumulative easing implied by the rate cut, the apex bank insisted the action should not be interpreted as a shift to a loose monetary stance.
Cardoso emphasised that the decision was primarily an operational adjustment designed to improve the transmission of monetary policy rather than stimulate credit expansion.
“We will stay on the course, which has been a restrictive one, for as long as we have to,” he said. “This is not an easing. This is a reset and a recalibration.”
He explained that the gap between the benchmark rate and prevailing interbank rates had widened in recent months, weakening the effectiveness of monetary signals.
According to him, the recalibration was necessary to realign the MPR with market realities and restore its role as the primary policy indicator.
The committee also highlighted the growing importance of the Nigerian Overnight Financial Average, a transaction-based benchmark that has improved transparency in the money market.
The MPC noted that aligning the MPR more closely with observable market rates would enhance policy credibility and effectiveness.
However, the rate cut has drawn immediate reactions from business leaders, who argue that the adjustment will have limited impact unless commercial banks reduce lending rates.
Representatives of the Organised Private Sector, speaking in separate interviews, called on banks to transmit the benefits of the lower benchmark rate to borrowers.
They warned that high lending costs remain a major constraint to business growth, particularly for small and medium-sized enterprises.
According to them, while the reduction in the MPR is a positive signal, structural issues in the banking sector continue to keep borrowing costs elevated.
They stressed the need for complementary reforms to improve credit access and reduce the risk premium embedded in loan pricing.
“The real test of this decision is whether businesses can access cheaper credit,” one private sector leader said.
“If lending rates remain high, then the impact on production, investment and job creation will be minimal.”he added.
The CBN’s decision comes amid signs of improving macroeconomic stability following an extended period of aggressive monetary tightening.
Cardoso pointed to stronger external buffers, declining inflation and improved investor confidence as key indicators supporting the policy shift.
Nigeria’s gross external reserves rose to $55.25bn as of September 18, 2026, the highest level in 18 years, providing import cover of more than 11 months.
The balance of payments also recorded a surplus of $3.51bn in the second quarter, up from $2.38bn in the first quarter.
Similarly, the current account surplus increased sharply by 67.92 per cent to $7.54bn.
The governor attributed part of the improvement to rising diaspora remittances, which have grown significantly since the CBN introduced reforms to enhance inflows.
Monthly remittances increased from about $200m to nearly $1bn by July, approaching the bank’s target.
Inflation trends have also shown consistent moderation. Headline inflation eased to 15.39 per cent in August from 15.43 per cent in July, marking the third consecutive monthly decline.
Food inflation dropped to 19.57 per cent from 20.31 per cent, while core inflation fell to 13.29 per cent from 14.97 per cent.
On a month-on-month basis, headline inflation slowed to 0.71 per cent, compared with 1.57 per cent previously.
The MPC attributed the easing inflationary pressures to earlier monetary tightening, exchange rate stability and improved inflation expectations.
It, however, cautioned that risks remain, particularly from geopolitical tensions in the Middle East and increased fiscal spending ahead of elections.
Cardoso said the central bank is prepared to manage potential liquidity surges associated with the electoral cycle.
He noted that the bank has analysed past election periods and developed strategies to mitigate inflationary pressures.
“We are ready,” he said. “We will proactively deploy any tools and instruments to mop up excess liquidity. We will not allow ourselves to be caught unaware.”
He added that the bank would closely monitor currency in circulation, banking system liquidity, monetary aggregates and foreign exchange demand. While assuring that adequate cash supply would be maintained, he warned against currency abuse and pledged stronger collaboration with law enforcement agencies.
The governor also encouraged the adoption of electronic payment channels, noting that digital transactions enhance transparency and accountability.
On economic performance, the MPC reported that real Gross Domestic Product grew by 4.43 per cent in the second quarter of 2026, up from 3.89 per cent in the first quarter.
Growth in the non-oil sector accelerated to 4.31 per cent from 3.94 per cent, while the oil sector expanded significantly by 7.31 per cent, compared with 2.57 per cent previously.
The Composite Purchasing Managers’ Index also improved to 52.7 points in August, indicating continued expansion in economic activity.
Reflecting on his tenure, Cardoso said the current leadership inherited an economy characterised by weak confidence, currency instability and high inflation.
He highlighted key reforms, including exchange rate unification, banking sector recapitalisation and the rebuilding of external reserves.
He also pointed to the reduction in excessive liquidity arising from Ways and Means financing and intervention programmes, which had injected over N10tn into the economy in previous years.
Cardoso described the recently signed fiscal-monetary coordination agreement between the CBN and the Federal Ministry of Finance as a critical step toward achieving price stability and transitioning to an inflation-targeting framework.
As businesses await the response of commercial banks, analysts say the effectiveness of the rate cut will ultimately depend on how quickly it translates into lower borrowing costs and improved credit access.
