Onome Amuge
The Central Bank of Nigeria (CBN) has paired its first interest rate cut in five years with tighter controls on public sector liquidity, signalling a cautious recalibration of monetary policy aimed at stimulating growth while guarding against fresh inflationary risks.
The apex bank lowered its Monetary Policy Rate (MPR) by 50 basis points to 27 per cent, marking the first reduction since September 2020. But alongside the cut, it imposed a 75 per cent cash reserve requirement (CRR) on non-Treasury Single Account (non-TSA) public sector deposits, a move analysts said underscored policymakers’ determination to prevent excess liquidity from blunting the impact of easing.
Announcing the decision in Abuja after a two-day Monetary Policy Committee (MPC) meeting, Governor Olayemi Cardoso said the committee acted on sustained disinflation over five consecutive months that had created room to support economic recovery. Nigeria’s headline inflation eased to 20.12 per cent in August, though it remains among the highest in Africa.
The CBN also reduced the CRR for deposit money banks by 500 basis points to 45 per cent, retained the ratio for merchant banks at 16 per cent, and kept the liquidity ratio unchanged at 30 per cent. Meanwhile, the asymmetric corridor around the policy rate was adjusted to plus or minus 250 basis points to improve monetary transmission.
The last time the CBN lowered rates was during the pandemic in September 2020, when the MPR was reduced from 12.5 per cent to 11.5 per cent to cushion the economy from lockdowns. Since then, the bank has aggressively tightened policy in response to inflation and currency weakness, most recently hiking rates to 27.25 per cent in September 2024.
The unanimous vote by all 12 MPC members reflects growing confidence in the macroeconomic outlook. Cardoso highlighted a stable exchange rate, strong external reserves, and a flexible policy framework as conditions underpinning the shift. Still, market participants remain cautious about whether easing will translate into cheaper credit in an economy where lending rates often remain detached from the policy benchmark.
The MPC said its adjustments aimed to strengthen the effectiveness of monetary policy transmission and sustain economic momentum.
