By Our Finance Correspondent
The Central Bank of Nigeria (CBN) has cut its benchmark Monetary Policy Rate (MPR) by 350 basis points, from 26.5 per cent to 23 per cent, a move that could gradually lower borrowing costs for households and businesses and stimulate economic activity.
The decision, announced by Governor Olayemi Cardoso after the 307th Monetary Policy Committee meeting in Abuja, is the biggest reduction in the current easing cycle. However, analysts say that the immediate benefit to ordinary Nigerians will depend largely on how quickly commercial banks translate the lower policy rate into cheaper loans.
For households, cheaper credit could eventually reduce the cost of consumer and personal loans, mortgages and other forms of bank borrowing, while businesses, particularly manufacturers, traders and small and medium-sized enterprises, could gain access to more affordable working capital and investment funds. Lower borrowing costs could also encourage businesses to expand, invest and employ more workers. However, lending rates are influenced by more than the MPR, so the cut does not mean bank loan rates will automatically fall by 3.5 percentage points.
The sectors most likely to respond to cheaper credit are manufacturing, construction, real estate, trade and small businesses, where access to affordable finance can directly support production, inventory purchases and expansion. The financial services sector could also benefit from increased credit demand. On the other hand, lower rates could reduce returns for savers and investors in fixed-income instruments, while easier money, if not matched by increased production, could eventually add pressure to inflation and asset prices. Analysts have also reportedly raised concerns that the sharp reduction could test recent gains in foreign-exchange stability.
Cardoso said the decision was prompted by changing economic conditions and the need to make the policy rate a more effective signal to the financial system. “The tightening we have done in the past has worked. FX pressure has receded. Capital market growth is because of the FX market stability. Investor confidence has come back. We have nothing to fear. This is a reset and a recalibration. No better time to do it than now when things are stable,” he said. The MPC reportedly said the adjustment was an operational realignment rather than a change in the underlying monetary policy stance.
The committee also recalibrated the standing facilities corridor to +50/-300 basis points around the MPR, while retaining the Cash Reserve Requirement 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 MPC said the divergence between the MPR and prevailing market rates had weakened monetary-policy transmission and that the reset was intended to “strengthen policy transmission and restore the MPR as a principal signal of monetary policy.”
The rate cut comes against a backdrop of improving economic indicators. Headline inflation eased to 15.39 per cent in August from 15.43 per cent in July, while real GDP expanded by 4.43 per cent in the second quarter of 2026. The CBN also reported that gross external reserves stood at $55.25 billion as of September 18, 2026, the highest in 18 years and enough to finance about 11.3 months of imports. The stronger external position and receding FX pressures were among the factors cited by the bank in supporting the reset.
Cardoso, who marked three years as CBN governor, also pointed to the rebuilding of external reserves, bank recapitalisation and stronger diaspora remittances as key achievements of his tenure. He said monthly remittances had risen from about $200 million when the reforms intensified to almost $1 billion by July. For ordinary Nigerians, however, the real test of the rate cut will be whether it translates into cheaper loans, increased business activity, more jobs and lower financing costs without reigniting inflation or putting pressure on the Naira.