Why we reduced interest rate to 26.50%-CBN gov

NECA, CPPE back Apex bank’s rate cut, urge broader reforms

The Central Bank of Nigeria (CBN) says its decision to reduce the Monetary Policy Rate (MPR) by 50 basis points was partly informed by sustained deceleration in year-on-year inflation.

The CBN Governor, Yemi Cardoso, said this on Tuesday in Abuja while presenting the communiqué from the 304th meeting of the Monetary Policy Committee (MPC).

The News Agency of Nigeria (NAN) reports that the MPC reduced the MPR by 50 basis points to 26.50 per cent from 27 per cent.

The committee also retained the Cash Reserve Ratio (CRR) at 45 per cent for commercial banks and 16 per cent for merchant banks.

The Liquidity Ratio was retained at 30 per cent, while the Standing Facilities Corridor was maintained at +50/-450 basis points around the MPR.

According to Cardoso, in reaching the decision, the committee considered the sustained deceleration in year-on-year headline inflation in January, marking the 11th consecutive month of decline.

“This downward trajectory in inflation was driven mainly by the continued effects of contractionary monetary policy, stability in the foreign exchange market, robust capital inflows, and improvement in the balance of payments.

“The momentum was further reinforced by relative stability in the prices of petroleum products and improved food supply conditions, especially staples.

“These outcomes have indicated that prior tightening has continued to anchor expectations,” he said.

Cardoso added that the MPC took note of the remarkable performance of Nigeria’s external sector, evidenced by robust accretion to foreign exchange reserves, supported by higher export earnings and increased remittance inflows.

According to him, this has contributed to greater stability in the foreign exchange market and bolstered investor confidence.

He said the MPC also welcomed the newly issued Presidential Executive Order 09, which redirected oil and gas revenues into the federation account.

“The committee acknowledged the potential impact of this order in improving fiscal revenue and accretion to reserves.

“Given these improved macroeconomic conditions, the committee believed that a moderate easing was consistent with the prevailing inflation dynamics.

“Members acknowledged the continued resilience of the banking sector, with most key financial soundness indicators remaining within regulatory thresholds,” Cardoso said.

Meanwhile, the Nigeria Employers’ Consultative Association (NECA) and the Centre for the Promotion of Private Enterprise (CPPE) have commended the Central Bank of Nigeria (CBN) for reducing the Monetary Policy Rate (MPR).

In a statement on Tuesday, NECA Director-General, Mr Adewale-Smatt Oyerinde, praised the decision in a statement issued on Tuesday in Lagos.

He noted that the Monetary Policy Committee lowered the MPR from 27.0 per cent to 26.5 per cent at its 304th meeting.

Oyerinde described the 50 basis point cut as “a cautious but noteworthy signal” that authorities were responding to sustained pressures on businesses.

He said the marginal reduction might not immediately lower lending rates, but reflected “a gradual shift toward supporting growth without undermining price stability”.

According to him, the overall stance remained tight, with the Cash Reserve Ratio retained at 45 per cent and the liquidity ratio at 30 per cent.

He added that the asymmetric corridor around the MPR was also maintained, reinforcing a cautious monetary approach.

 “With a substantial portion of deposits still sterilised, banks’ capacity to expand credit to the real sector may remain constrained in the near term,” he said.

Oyerinde described the move as “a careful balancing act” aimed at moderating inflation without worsening pressures on businesses.

He noted that firms continued to grapple with high operating costs, exchange rate volatility and weakened consumer demand.

 “Inflation, particularly in food, energy and transportation, remains a significant challenge to employers and households,” he said.

He stressed that the modest easing must be supported by coordinated fiscal and structural reforms to address supply-side constraints.

Such reforms, he said, should improve infrastructure and enhance productivity across key sectors of the economy.

Oyerinde urged financial institutions to ensure the MPR reduction was gradually reflected in lending conditions for manufacturers and SMEs.

He affirmed that although the MPC had not fully relaxed its tightening stance, the rate cut signalled cautious optimism.

 “Sustained improvements in inflation, exchange rate stability and investor confidence will determine scope for further easing that supports growth and employment,” he said.

In the same vein, the Centre for the Promotion of Private Enterprise (CPPE) has praised the Central Bank of Nigeria (CBN) for cutting the Monetary Policy Rate by 50 basis points to 26.5 per cent.

According to CPPE, in a policy brief issued on Tuesday in Lagos, the move is growth-supportive.

It said the decision of the Monetary Policy Committee, announced by the CBN Governor, Olayemi Cardoso, reflected improving macroeconomic fundamentals and a cautious shift from aggressive tightening.

The organisation noted that sustained disinflation, stronger external reserves, an improved trade balance and relative exchange-rate stability had created room for monetary easing.

It said the rate cut could boost investor confidence and support private-sector growth, but cautioned that weak monetary transmission might limit its impact on lending rates.

The CPPE identified high cash reserve requirements, elevated lending rates, government borrowing and structural banking costs as major constraints to effective transmission.

The group also stressed the need for fiscal consolidation, citing high public debt, persistent deficits and rising debt-service obligations as risks to macroeconomic stability.

The Chief Executive Officer of CPPE, Dr Muda Yusuf, said effective policy coordination and stronger transmission mechanisms were critical to unlocking investment and sustaining growth.

He commended the CBN for what he described as a measured and data-driven policy adjustment.

The CPPE bods noted that the easing reflected strengthening macroeconomic performance, declining inflation, growing reserves, improved trade balance and enhanced foreign exchange stability.

Yusuf added that for the benefits of monetary easing to be fully realised, authorities must strengthen transmission to ensure lower lending rates for the real sector and advance credible fiscal consolidation to safeguard stability.

He said that if supported by structural reforms and disciplined fiscal management, the current policy direction could unlock a stronger investment cycle and more durable economic growth.