By Aisha Muhammad Magaji
The Central Bank of Nigeria (CBN) has lowered its Monetary Policy Rate (MPR) from 27.5 percent to 27 percent, marking the first reduction in borrowing costs in over five years. The decision, announced on Tuesday at the conclusion of the 302nd Monetary Policy Committee (MPC) meeting in Abuja, reflects cautious optimism that recent declines in inflation will continue.
CBN Governor Olayemi Cardoso told journalists that the cut was necessary to “strike a balance between consolidating the gains in inflation control and creating space for credit expansion to support economic growth.”
Why the CBN Cut Rates
Nigeria’s headline inflation slowed for the fifth consecutive month in August 2025, easing to 20.12 percent year-on-year. This trend, coupled with relative stability in the exchange rate and improved foreign reserves, gave the MPC room to ease monetary policy for the first time since 2020.
“The MPC acknowledged that while inflation remains elevated, the disinflation trajectory provides an opportunity to carefully adjust the policy stance,” Cardoso said. “The decision to reduce the MPR by 50 basis points is aimed at lowering the cost of credit and stimulating private sector activity.”
Other Monetary Policy Adjustments
Alongside the MPR cut, the committee announced a series of complementary measures:
- Cash Reserve Ratio (CRR) for deposit money banks was lowered to 45 percent, easing liquidity constraints in the banking system.
- The CRR for merchant banks was retained at 16 percent.
- A 75 percent CRR was introduced for non-Treasury Single Account (TSA) public sector deposits to curb speculative flows.
- The liquidity ratio remains at 30 percent.
These adjustments are intended to create a more favorable credit environment while tightening oversight on public sector funds.
Opportunities and Risks
Analysts say the move could unlock cheaper loans for households and businesses, particularly in agriculture, manufacturing, and services. By reducing borrowing costs, the CBN hopes to spur investment and strengthen Nigeria’s fragile post-pandemic recovery.
However, economists also caution that inflation remains high at above 20 percent, and a premature easing of policy could trigger renewed price pressures. “The key risk is whether banks will transmit this rate cut to consumers and whether inflationary shocks from food, fuel, or currency markets will wipe out the gains,” said financial analyst Kunle Adesina.
Looking Ahead
The central bank will now watch closely how commercial lenders respond and whether credit to the private sector expands in the coming months. Markets will also be monitoring inflation figures for September and October, which will indicate whether the disinflation trend is sustainable.
International rating agencies and investors are expected to weigh in on the policy shift, with attention on Nigeria’s external reserves, exchange rate stability, and fiscal discipline.
For now, the cut signals a cautious but significant shift in Nigeria’s monetary policy one aimed at balancing price stability with economic growth.
