Dr Muda Yusuf- CBN Benchmark Rate Should Not be Higher Than the Inflation Rate

The Central Bank of Nigeria (CBN) recently announced a pause in its aggressive monetary policy tightening, opting to hold the benchmark interest rate steady at 27.25%. This decision, which breaks a cycle of consecutive rate hikes, has been met with cautious optimism by economic stakeholders. The Centre for the Promotion of Private Enterprise (CPPE), a prominent voice in Nigeria’s economic discourse, has described the move as a welcome relief for businesses and households battered by soaring borrowing costs. However, the organization emphasizes that this alone is insufficient to address the deeper structural challenges stifling growth in Africa’s largest economy.

A Breather Amid Economic Strain

Nigeria’s economy has been under immense pressure in recent years, grappling with double-digit inflation, a weakened naira, and sluggish growth. The CBN’s rate hikes, which began in 2022, were aimed at taming inflation that peaked at over 34% in mid-2024; one of the highest levels in decades. While these measures succeeded in curbing some inflationary pressures, they also squeezed businesses and consumers. High interest rates made loans prohibitively expensive, stifling investment and pushing many small enterprises to the brink.

The decision to pause rates signals a shift in the CBN’s approach, acknowledging the toll of its hawkish stance. For industries reliant on credit such as manufacturing, agriculture, and retail, this offers a glimmer of hope. Lower borrowing costs could ease cash flow constraints and encourage expansion. For everyday Nigerians, it might mean a slight reprieve from the rising cost of living, as businesses pass on fewer interest-related expenses to consumers.

Why the Pause Isn’t Enough

While the CPPE has praised the CBN’s decision, it warns that a rate pause is merely a Band-Aid on a much larger wound. Nigeria’s economic woes extend far beyond monetary policy. Foreign exchange scarcity remains a critical bottleneck, with the naira’s value continuing to erode against major currencies. This has driven up the cost of imported goods, from raw materials to fuel, further fueling inflation.

Additionally, structural inefficiencies such as unreliable power supply, poor infrastructure, and bureaucratic red tape continue to undermine productivity. The CPPE has urged the government to complement the CBN’s efforts with bold fiscal reforms. For instance, addressing the energy crisis could reduce operational costs for businesses, while streamlining taxation would boost investor confidence.

The manufacturing sector, a potential engine of growth, is particularly vulnerable. With interest rates still at historic highs despite the pause, access to affordable capital remains out of reach for many firms. The CPPE has called for targeted interventions, such as subsidized loans or incentives for key industries, to stimulate output and create jobs.

The Road Ahead

The CBN’s rate pause is a pragmatic move, reflecting a balancing act between inflation control and economic growth. However, its impact will be limited without a holistic strategy. Analysts suggest that the apex bank could explore unconventional tools, such as expanding liquidity for priority sectors, while the federal government tackles supply-side constraints.

For now, Nigerians are watching closely. The hope is that this pause marks the beginning of a broader rethink of economic policy one that prioritizes sustainable growth over short-term fixes. As the CPPE aptly notes, more action is needed. The question is whether the government and the CBN can rise to the challenge in a country where resilience is abundant, but resources are stretched thin.

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