The Monetary Policy Committee (MPC) of the Central Bank of Nigeria has, for the first time since the Covid-19 pandemic in 2020, reduced the benchmark interest rate, signalling a cautious shift from its long-standing hawkish stance.
At its September 2025 meeting, the MPC cut the Monetary Policy Rate (MPR) by 50 basis points to 27 per cent. It also adjusted the Cash Reserve Ratio (CRR) for deposit money banks to 45 per cent from 50 per cent and narrowed the asymmetric corridor to +250/-250 basis points around the MPR. However, it retained the Liquidity Ratio at 30 per cent and kept the CRR for merchant banks at 16 per cent.
Analysts described the move as a “modest but symbolic step” that reflects improving macroeconomic conditions. They noted that inflation has slowed for the fifth straight month, standing at 20.1 per cent in August, while the naira gained 2.8 per cent to trade at N1,488.26/$1.00 since July. Oil production also rose to 1.68 million barrels per day in the second quarter of 2025, compared with 1.62 million barrels per day in the first quarter, with GDP growth strengthening to 4.2 per cent year-on-year in the same period.
“By lowering the benchmark rate by 50 basis points to 27 per cent, the MPC made a modest but symbolic move, as it marks the first break from months of aggressive tightening. It reflects recognition that growth cannot be perpetually stifled in the name of inflation control,” Afrinvest analysts said.
Although the adjustment is unlikely to provide immediate relief to businesses currently borrowing at rates above 30 per cent, experts said the signal is clear that the CBN is gradually pivoting towards policies that support growth.
One of the most notable outcomes of the meeting was the introduction of a 75 per cent CRR on non-TSA government deposits, including funds from ministries, departments, agencies, and state and local governments not swept into the Treasury Single Account. Analysts explained that these deposits have long served as a cheap pool of funds for banks, often fuelling exchange rate volatility after Federation Account allocations. By sterilising 75 per cent of such balances, the CBN aims to limit speculative pressures and force banks to rely more on private sector deposits.
Afrinvest noted, “The policy signals a modest easing bias, but one tempered by liquidity sterilisation. Short-term yields may trend lower, equities could benefit from growth-supportive signals, but banks with heavy government deposit exposure may face near-term pressures.”
They also warned that Nigeria’s inflation remains largely cost-push, driven by exchange rate swings, the impact of fuel subsidy removal, food supply disruptions, and high energy costs, rather than excess demand.
“Further hikes would have been the wrong medicine,” they said. “The real test is whether inflation continues to ease and the naira can achieve meaningful stability. Without consistent policy direction, stronger fiscal alignment, and structural reforms that address the root causes of inflation, this cut could remain symbolic.”
Also speaking on the decision, Partner and Corporate Finance Expert at TNP, Mrs. Bukola Bankole, said the cut signals that the Central Bank is mindful of the need to support growth. However, she stressed that businesses borrowing at high rates would not see immediate relief.
“For investors, Nigeria’s yield story remains unchanged because even after the cut, local instruments remain among the most attractive across frontier and emerging markets,” she said. “A half-point change does little to alter that. The real test is whether inflation starts to ease and whether the naira can achieve meaningful stability.”
Bankole argued that Nigeria’s inflation challenge is not rooted in excessive demand but in structural issues such as currency volatility, high energy costs, and food supply challenges. According to her, while the MPC’s move creates space for credit expansion, without stronger fiscal alignment and reforms in critical sectors, the cut may end up being only symbolic.
“If those elements are in place, then this small cut could truly mark the beginning of a more sustainable policy mix that supports growth without abandoning the fight for price stability,” she said.
The MPC’s decision is being viewed as a delicate balancing act, loosening just enough to encourage credit expansion and economic growth, while tightening controls on liquidity that could undermine price and foreign exchange stability.
