The the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) has lowered benchmark interest rate by 50 basis points to 27% from 27.5%, marking the first cut in five years.
Governor Olayemi Cardoso announced the decision Tuesday during the Monetary Policy Committee’s 302nd meeting in Abuja.
Cardoso said the decision was anchored on five straight months of disinflation and a more stable macroeconomic environment.
Here’s a breakdown of the Monetary Policy Committee’s decision, what changed, why it matters, and what the apex bank is aiming for:
- Benchmark Interest Rate (MPR): Cut from 27.5% to 27%
What was there before: 27.5%, already one of the highest globally.
What changed: A 50 basis-point cut – the first cut since 2020.
What it means: The Monetary Policy Rate (MPR) is the anchor interest rate that guides how expensive or cheap it is for banks to borrow from the CBN. Lowering it slightly makes credit a bit more accessible, signaling cautious support for growth.
Effect: Businesses and consumers might face slightly lower borrowing costs, though commercial bank lending rates remain high. The cut also suggests the CBN is gaining confidence after five months of disinflation.
What the CBN is trying to do: Encourage investment and ease pressure on credit-starved businesses, while still keeping a tight leash on inflation.
- Standing Facilities Corridor: Narrowed from +500/-100 to +250/-250 around the MPR
What was there before: A wide corridor – banks could borrow at MPR +500 basis points or deposit with CBN at MPR -100.
What changed: Now both sides are tighter at +250/-250.
What it means: This is about how much “extra” (higher by 250 basis points or 2.5% added to the 27% MPR) it costs banks to borrow short-term money from the CBN, and how much they earn when they park money there (lower by 250 basis points or 2.5% subtracted from the 27% MPR).
By narrowing the gap, the CBN reduces volatility and gives banks less incentive to simply park funds at the central bank instead of lending to the real economy.
Under the old system:
- Banks could borrow from the CBN at 32.25% (MPR + 500bp)
- But could only deposit excess funds at 26.25% (MPR – 100bp)
The new symmetric corridor of +250/-250 basis points creates:
- Borrowing rate: 29.5% (MPR + 250bp)
- Deposit rate: 24.5% (MPR – 250bp)
Effect: More predictable short-term rates, encouraging banks to lend more actively instead of hoarding cash.
What the CBN is trying to do: Force liquidity into the broader economy without letting inflationary credit growth run wild.
- Cash Reserve Requirement (CRR): Raised to 45% for commercial banks; Merchant banks unchanged at 16%
What was there before: Commercial banks’ CRR stood at 40%.
What changed: Now it’s nearly half at 45%, while merchant banks stay at 16%.
What it means: CRR is the portion of deposits banks must keep with the CBN instead of lending out, earning no interest. Raising it means banks must lock away more cash.
Effect: This drains liquidity from the system, limiting how much banks can lend, which helps in slowing inflationary pressure. But it also keeps borrowing costs high for businesses and households.
What the CBN is trying to do: Tighten liquidity in commercial banks, the ones that handle the bulk of public savings, to curb inflationary risks.
- New 75% CRR on Non-TSA Public Sector Deposits
What was there before: Public deposits (outside the Treasury Single Account system) were treated like other deposits.
What changed: Now, 75% of such deposits must be sterilized at the CBN.
What it means: Many public-sector funds often sit in commercial banks rather than the Treasury Single account system.
This fuel lending and distort liquidity. By locking away three-quarters of that money, the CBN blocks banks from using it for risky plays.
Effect: Sharp squeeze on excess liquidity, making banks less dependent on public deposits for easy profits. This forces them to rely more on genuine private-sector deposit.
What the CBN is trying to do: Plug leakages in the financial system, discipline banks, and prevent public money from posing as liquidity risk in the economy.
- Liquidity Ratio: Unchanged at 30%
What was there before: 30%, and it stays that way.
What it means: Liquidity ratio is the minimum percentage of liquid assets (like cash and government securities) that banks must hold compared to their liabilities. Keeping it steady means the CBN didn’t want to over-tighten and risk choking banks.
Effect: Stability. Banks still have to maintain a buffer, but it won’t worsen their balance-sheet constraints.
What the CBN is trying to do: Maintain confidence in the banking system while adjusting other levers of monetary policy.
In Summary
The CBN remains cautious on inflation, loosening rates just enough to support growth, while simultaneously tightening liquidity through higher reserves, and stricter rules on public funds.
CBN is betting that inflation’s downtrend will continue, but it’s not ready to throw open the credit taps.
The MPC wants to reassure investors that Nigeria is moving toward stability without repeating past mistakes of reckless liquidity surges.
