CBN slashes MPR by 350bps to 23% in biggest rate cut since 2006

…Says previous benchmark is disconnected from rates actually used in financial markets

…MPC decision to cut the MPR by 350 basis points is justified-Prof Uwaleke

The Central Bank of Nigeria (CBN) has cut its benchmark interest rate by a massive 350 basis points to 23 per cent, delivering its biggest single reduction since 2006 in a move that could lower borrowing costs, reshape investment decisions and give fresh momentum to businesses and the equities market.

The decision, taken at the 307th meeting of the Monetary Policy Committee (MPC) in Abuja, reduces the Monetary Policy Rate (MPR) from 26.5 per cent and brings it to its lowest level since February 2024, when the rate stood at 22.75 per cent. The committee had retained the MPR at 26.5 per cent at its July meeting.

CBN Governor Olayemi Cardoso said the committee “reset” the rate in response to stronger evidence that inflation was moderating and economic activity was improving, stressing that the move was an operational recalibration rather than a change in the bank’s underlying commitment to price stability.

The decision came as headline inflation slowed for a third consecutive month to 15.39 per cent in August, while real Gross Domestic Product (GDP) growth accelerated to 4.43 per cent in the second quarter of 2026. The committee also pointed to a Composite Purchasing Managers’ Index of 52.7 as evidence that private-sector activity was expanding.

The rate reset could have its biggest effect on the cost of credit, particularly for manufacturers, consumer businesses, traders and other companies that have endured exceptionally high financing costs over the past several years.

Financial economist Abiodun Ogunniyi of GTI Group said the decision could improve access to credit and encourage businesses to borrow for production and expansion after years of elevated interest rates.

For manufacturers, lower financing costs could make it more viable to invest in machinery, expand capacity and rebuild working capital. For households, the eventual transmission could support consumer spending if commercial lending rates begin to fall.

The immediate adjustment, however, may not be fully reflected in bank lending rates. Ogunniyi noted that some banks have been charging between 30 and 35 per cent on certain credit products, meaning the pace at which commercial lending rates respond will depend on competition and liquidity conditions.

The CBN also reset the operating corridor around the MPR to +50 basis points and -300 basis points, while retaining the Cash Reserve Requirement at 45 per cent for commercial banks, 16 per cent for merchant banks and 75 per cent on non-TSA public-sector deposits.

The unchanged reserve requirements mean the rate reduction is not a broad release of liquidity into the banking system. Instead, the CBN is seeking to make its benchmark more relevant to actual market conditions after a prolonged disconnect between the official MPR and rates at which money was trading.

Also speaking on this development, Nigeria’s first professor of capital market studies, Professor Uche Uwaleke, explained that the MPC decision to cut the MPR by 350 basis points is justified by moderating inflation, exchange rate stability, improvement in FX market liquidity, and accretion to external reserves.

“It is a welcome development against the backdrop of the recently signed MoU between the Minister of Finance and the CBN Governor on fiscal and monetary policies collaboration”, he said.

The apex bank noted that while the MPR had remained at 26.5 per cent, the interbank rate and Standing Deposit Facility rate were around 22 per cent, making the SDF the de facto reference rate for many financial transactions. The disconnect had weakened the transmission of monetary policy to the real economy.

The scale of the adjustment also has major implications for investors. Treasury bill yields had already begun falling, with the 364-day instrument declining from 17.59 per cent in August to 16.62 per cent by September 9. That could encourage investors to move part of their portfolios from fixed-income securities into equities as the return gap narrows.

The equity market had already been strengthening ahead of the decision. The NGX All-Share Index rose 0.18 per cent on Tuesday to 250,614.66 points, taking market capitalisation to N162.68 trillion and the year-to-date gain to 61.05 per cent.

Analysts expect sectors dependent on credit, including consumer goods, industrials, oil and gas and manufacturing, to benefit if the lower policy rate translates into cheaper bank loans and stronger demand.

The latest move therefore marks a significant turning point in Nigeria’s monetary policy. After years of exceptionally tight financial conditions, the CBN is signalling that the economy may now be able to support a lower price of money.

But the real test will come in the months ahead: whether the 350-basis-point reset moves beyond the financial markets into cheaper business loans, higher private-sector investment, stronger consumption and faster economic growth.