CBN Cuts Interest Rate to 27% in First Reduction Since 2020

What the MPC Actually Decided

This CBN interest rate cut is pretty significant when you consider the context. We’re talking about the first reduction after six straight hikes in 2024, then three meetings where they basically sat on their hands in 2025. All 12 MPC members showed up for this one, and they were unanimous.

“The Committee decided to reduce the Monetary Policy Rate by 50 basis points to 27.00 per cent,” Cardoso said during Tuesday’s press briefing. Straightforward enough. But they also tinkered with the Standing Facilities corridor, adjusting it to +250/-250 basis points around the new rate.

Here’s where things get interesting for the banks. The Cash Reserve Requirement for commercial banks jumped to 45 percent. That’s a big deal. Merchant banks stay at 16 percent, but there’s now a hefty 75 percent CRR on non-TSA public sector deposits. The Liquidity Ratio? They left that alone at 30 percent.

Why Now? The Inflation Story

Sustained disinflation over five months appears to have given the MPC enough confidence to make this move. Headline inflation dropped to 20.12 percent in August from 21.88 percent in July. Food inflation fell from 22.74 percent to 21.87 percent, which probably matters more to most Nigerians than the headline number.

Core inflation also eased to 20.33 percent from 21.33 percent. But here’s the really telling figure: month-on-month inflation slowed dramatically to 0.74 percent in August compared with 1.99 percent in July. That’s the kind of trend that gets central bankers excited.

The committee seems optimistic about disinflation continuing through 2025, banking on exchange rate stability, falling petroleum prices, and the usual seasonal harvest effects. Whether this optimism is justified remains to be seen, but it clearly influenced their decision to try supporting economic recovery through easier monetary policy.

The Economy’s Mixed Signals

Nigeria’s economy did show some life in Q2 2025, with GDP growth hitting 4.23 percent,up from 3.13 percent in Q1. The oil sector deserves most of the credit here, expanding 20.46 percent compared with a measly 1.87 percent the previous quarter.

The MPC was full of praise for the Federal Government’s security improvements in oil-producing regions. Fair enough, sustained production growth should help with external reserves and foreign exchange stability. Though it’s worth noting how dependent Nigeria still is on oil performance.

Foreign reserves stood at $43.05 billion as of September 11, up from $40.51 billion at the end of July. That gives about 8.28 months of import cover, which sounds decent. The current account balance posted a $5.28 billion surplus in Q2, compared with $2.85 billion in Q1.

Banking Sector Reality Check

Fourteen banks have apparently met the new recapitalization requirements already. Cardoso says the sector is maintaining resilience and hitting all the right prudential benchmarks, which is the kind of thing central bank governors are supposed to say.

But the committee did warn about excess liquidity sloshing around the banking system from fiscal releases. That’s where those new CRR measures come in, they’re designed to mop up surplus funds and make monetary policy transmission work better. Whether it actually will is another question.

Nigeria’s rate cut does follow a regional pattern across Africa. Ghana slashed its policy rate by 350 basis points to 21.5 percent just last week. Kenya trimmed theirs to 9.5 percent back in mid-August. Still, Nigeria’s 27 percent rate remains the highest on the continent, which tells you something about the inflation pressures they’re still dealing with.

The next MPC meeting is set for November 24-25, where they’ll presumably see if this gamble on supporting growth while keeping inflation in check actually works out.