CBN Says Rate Cut was Designed to Stimulate Productive Activities, Not Abandon Inflation Fight

Reported by Ariajegbe Sylvia Esezobor 

The Central Bank of Nigeria has said its decision to reduce the Monetary Policy Rate from 26.5 per cent to 23 per cent was designed to stimulate productive activities while sustaining efforts to bring inflation down to single digits, rejecting any suggestion that the aggressive easing signals a retreat from price stability. The Director of the Stakeholder Engagement and Institutional Relations Department, Mrs Hakama Sidi-Ali, made the clarification on Tuesday at the CBN Special Day during the 21st Abuja International Trade Fair, explaining that the 350-basis-point reduction, the largest since December 2006, was calibrated to support businesses without losing focus on inflation, which stood at 15.39 per cent in August 2026. "The Bank recently reset the Monetary Policy Rate from 26.5 per cent to 23 per cent and recalibrated the Standing Facilities Corridor to +50/-300 basis points around the MPR, to support productive activities without losing focus on bringing inflation down to single digit from its current position of 15.39 per cent," Sidi-Ali said.

The decision, taken at the 307th meeting of the Monetary Policy Committee on September 21 and 22, 2026, followed consecutive rate holds at 26.5 per cent in May and July. The CBN Governor, Olayemi Cardoso, said the easing was driven by sustained moderation in inflation and improved conditions in the foreign exchange market. The MPC retained the Cash Reserve Ratio for deposit money banks at 45 per cent, merchant banks at 16 per cent, and non-Treasury Single Account public sector deposits at 75 per cent, while adjusting the asymmetric corridor around the MPR. The 350-basis-point cut is the largest in the benchmark rate since December 2006, when the CBN lowered the rate by 400 basis points from 14 per cent to 10 per cent.

Sidi-Ali framed the decision within a broader narrative of macroeconomic stabilisation, pointing to Nigeria's gross external reserves exceeding $55 billion as of September 18, 2026, which she described as the highest level in 18 years. She attributed the improvement to increased foreign exchange inflows from remittances, investments and greater participation in the formal financial system, and said the unification of the foreign exchange market had enhanced stability and strengthened investor confidence. Inflation has moderated from 24.48 per cent in January 2025 to 15.39 per cent in August 2026, while the economy expanded by 3.89 per cent in the first quarter of 2026. "Resilient trade thrives in an environment of macroeconomic stability," Sidi-Ali said. "Businesses plan and invest with greater confidence when inflation is moderated, exchange rates are relatively stable, and the financial system is sound."

The CBN's move has triggered a wave of reactions across the economy. The Centre for the Promotion of Private Enterprise welcomed the cut as particularly positive for the real sector, where high financing costs have constrained investment, production and job creation, but warned that its impact would be limited unless banks transmitted the reduction to borrowers. "The CPPE expects banks to reflect the new monetary policy environment in the pricing of credit," its CEO, Dr Muda Yusuf, said. "Without meaningful transmission to borrowers, the impact of the policy adjustment on investment and economic growth would be limited." The Lagos Chamber of Commerce and Industry urged banks to direct increased liquidity towards sectors capable of raising production and employment, including manufacturing, agriculture and agro-processing.

The Manufacturers Association of Nigeria said the decision would ease pressure on local businesses and signalled a shift away from the tight monetary stance that had constrained manufacturing activity. Its Director-General, Segun Ajayi-Kadir, said the association expected the lower policy rate to reduce borrowing costs and improve access to working capital, inventory financing and investment funds. The Nigeria Employers' Consultative Association also commended the reduction, saying it could, over time, support lower lending rates and improve access to financing for manufacturers and small and medium-sized enterprises. NECA stressed that the ultimate test of the policy would be whether it enables increased investment, production and job creation.

The market response has been immediate. Stanbic IBTC Bank notified customers of changes in interest rates effective from September 22, 2026, the same day the MPC approved the reduction. Borrowers with variable-rate loans, including commercial loans, overdrafts and mortgages, may see lower interest payments, while depositors may see reduced returns on savings accounts and fixed deposits. The Financial Markets Dealers Association reported a broad decline in fixed-income yields, with average Treasury bill yields falling by 96 basis points and average OMO yields declining by 129 basis points between September 18 and 25. The Nigerian Overnight Financing Rate fell from about 22 per cent to around 20 per cent, narrowing the gap between the policy benchmark and prevailing money market rates.

Despite the optimism, analysts have cautioned that lower interest rates alone do not guarantee economic expansion. A Businessday analysis noted that economies grow when businesses invest, entrepreneurs expand capacity and capital flows into productive sectors, and that Nigeria requires deeper investment across manufacturing, infrastructure, agriculture, technology, energy and housing to unlock its growth potential. Gross fixed capital formation stood at approximately N60.5 trillion in 2024, and significantly greater levels of investment will be required to accelerate job creation. The CBN itself acknowledged that monetary easing alone is insufficient, with Sidi-Ali calling on financial institutions to increase financing to productive sectors and urging businesses to embrace innovation, strengthen governance and seek new markets.

Former bank executives have also weighed in. Okechukwu Unegbu, former president of the Chartered Institute of Bankers of Nigeria, said the rate reduction was a step in the right direction but noted that interest rates remained too high to provide meaningful relief to real-sector operators, calling for further cuts. Boniface Okesie, president of the Progressive Shareholders Association of Nigeria, said improvements in key macroeconomic indicators provided room for further easing, and stressed that the speed at which commercial banks pass on lower rates to borrowers would remain crucial in shaping Nigeria's economic growth in the coming quarters.

The political context of the rate cut is significant. The 2027 general elections are less than four months away, and the economy has emerged as the central issue in the campaign. President Bola Tinubu is seeking a second term on the All Progressives Congress platform, while former Vice President Atiku Abubakar of the African Democratic Congress and former Anambra Governor Peter Obi of the Nigeria Democratic Congress are among the major challengers. The government has consistently argued that its reforms, including the removal of the petrol subsidy and the unification of the exchange rate, are creating the conditions for sustainable growth, and the rate cut provides the administration with evidence that inflation is moderating and the macroeconomic environment is stabilising. Critics, however, argue that the benefits of the reforms have yet to reach ordinary Nigerians, who continue to grapple with high food and transport costs.

For businesses, the rate cut offers the prospect of cheaper credit and improved cash flows, but the extent of the benefit will depend on how quickly and fully banks adjust their lending rates. For the CBN, the decision represents a calculated bet that the stabilisation achieved over the past three years can now be translated into growth. As Sidi-Ali put it, the Bank will continue implementing reforms focused on price stability and financial system resilience while supporting increased competitiveness and sustainable economic growth. The coming months will determine whether the rate cut delivers on its promise or whether the transmission mechanism remains too weak to convert policy easing into productive investment.

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