The Central Bank of Nigeria (CBN) has reduced its Monetary Policy Rate (MPR) by 350 basis points, bringing it down to 23 percent from 26.5 percent.
The significant rate cut is expected to affect returns on fixed-income investments and could increase interest in equities as yields on fixed-income securities decline.
Ayokunle Olubunmi, head of Financial Institutions Ratings at Agusto & Co., said the reduction in the benchmark rate could push fixed-income yields lower and create conditions that support activity in the equity market.
“We expect a decline in fixed income yields but this will support the rally in the equity market,” Olubunmi said.
The decision marks a major change in the CBN’s monetary policy stance following an extended period of tight monetary conditions.
The Centre for the Promotion of Private Enterprise (CPPE) described the 350-basis-point reduction as a significant move away from restrictive monetary policy and towards supporting investment and economic recovery.
The group said the adjustment could change the relative attractiveness of different financial assets as investors respond to changing yields in the fixed-income and equity markets.
The rate cut comes as inflation continues to moderate. Headline inflation stood at 15.39 percent in August 2026, while money-market rates had been around 20 percent. This created a notable difference between prevailing market rates and the previous 26.5 percent MPR.
According to the CPPE, the gap had weakened the relationship between the policy rate and actual financial-market conditions. It therefore viewed the reduction to 23 percent as an adjustment that better reflects current economic and financial conditions.
Lower interest rates could also lead to reduced returns on government securities as the impact of the CBN’s decision spreads through the fixed-income market.
The CPPE said a prolonged decline in interest rates could lower the cost of government borrowing and eventually reduce the Federal Government’s domestic debt-service burden.
However, the organisation noted that the extent of this benefit would depend on how much the rate cut affects yields across the government securities market.
Rate cut may not immediately lower loan costs
The reduction in the policy rate could eventually bring down borrowing costs, but the change is not expected to automatically result in cheaper loans.
The Nigeria Employers’ Consultative Association (NECA) pointed to the CBN’s decision to retain the Cash Reserve Requirement (CRR) for deposit money banks at 45 percent, suggesting that monetary conditions remain relatively tight.
Adewale-Smatt Oyerinde, director-general of NECA, said the rate cut could support lower lending rates and improve access to financing, particularly for manufacturers and small and medium-sized businesses.
However, he said the speed and extent of the impact would depend on how banks adjust their lending rates.
The CPPE also said the effect of the policy change would depend largely on how effectively it is transmitted through the financial system, with banks expected to gradually adjust lending rates on new and existing facilities.
The CBN also changed the interest-rate corridor around the MPR to +50/-300 basis points from +50/-450 basis points.
Under the new arrangement, the Standing Lending Facility is now 23.5 percent, while the Standing Deposit Facility is 20 percent.
