Why the CBN decided to cut rates
During its 302nd Monetary Policy Committee (MPC) meeting on September 22‑23, 2025, all twelve members voted to trim the benchmark monetary policy rate (MPR) by half a percentage point, bringing it down to CBN interest rate cut 27%. This marks the first reduction since the September 2020 meeting, ending a three‑meeting spell of unchanged rates.
The committee cited a string of positive macro‑economic signals. Inflation has been on a steady decline for five consecutive months, dropping to 20.12% in August – the lowest reading since July 2022. At the same time, the economy expanded by 4.23% year‑on‑year in the second quarter of 2025, the strongest pace since Q2 2021. A firmer naira against major currencies reduced import‑price pressures, further easing inflationary trends.
Beyond the headline cut, the MPC tweaked several auxiliary tools to improve liquidity and policy transmission:
- Standing facilities corridor adjusted to +/- 250 basis points around the MPR, aimed at stabilising the interbank market.
- Cash reserve requirement (CRR) for commercial banks lowered to 45%; merchant banks kept at 16%.
- Introduced a 75% CRR on non‑TSA public‑sector deposits to guard against sudden outflows.
- Liquidity ratio left unchanged at 30%.
These measures are designed to free up credit for businesses while preserving a safety net for the banking sector.
Implications for Nigeria’s economy
With the rate now at 27%, the CBN remains in historically high territory, but the modest easing signals a shift from pure inflation fighting to supporting growth. Lower borrowing costs could revive investment in sectors that have been dormant due to the previously tight monetary stance, such as manufacturing, construction, and small‑enterprise development.
For consumers, a reduced MPR may gradually translate into lower loan and mortgage rates, easing household debt burdens. However, the impact will depend on how quickly banks pass on the lower policy rate and how stable the naira remains amid global forex volatility.
The adjustment also reflects confidence in the central bank’s ability to balance two competing goals: keeping inflation on a downward trajectory while not choking the economy’s recovery. Historical context shows the current rate is only a fraction above the all‑time high of 27.5% reached in November 2024, yet still well above the long‑term average of 13.1% since 2007.
Investors are likely to watch the bond market closely. A softer rate environment could make Nigerian sovereign bonds more attractive, potentially lowering yields and reducing the cost of external borrowing. This, in turn, can free up fiscal space for the government to fund infrastructure projects without exacerbating debt sustainability concerns.
Finally, the policy shift may influence regional monetary dynamics. Neighboring economies grappling with similar inflation pressures could look to Nigeria’s approach as a case study for timing rate adjustments in tandem with currency stability and growth data.
Overall, the CBN’s decision underscores a cautious optimism: disinflation appears credible, economic momentum is building, and the central bank feels equipped to fine‑tune policy without derailing the recovery that has been gathering steam over the past year.
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