Nigeria’s central bank surprisingly delivered its biggest single interest-rate cut on record, slashing the benchmark by 350 basis points to 23 percent as money-market rates had already fallen well below the previous policy rate.
The decision follows a three-month continuous cooling of inflation to 15.39 percent in August, down from 15.43 percent the previous month. And a subsequent decline in food prices to 19.57 percent, the first slowdown in about six months.
The move by Governor Olayemi Cardoso and the Monetary Policy Committee on Tuesday marks a sharp recalibration of the CBN’s policy framework, bringing the Monetary Policy Rate closer to prevailing Treasury bill, OMO and interbank rates rather than signalling a broad shift toward cheap money.
The MPC also narrowed its asymmetric corridor to plus 50 basis points and minus 300 basis points, while cutting the Standing Deposit Facility to 20 percent and the Standing Lending Facility to 23.5 percent.
Analysts said the MPR ‘reset’ reflects the significant disconnect that had emerged between the 26.5 percent benchmark rate and prevailing market rates, particularly Treasury bills and Open Market Operations (OMO) yields, which had already traded below 20 percent.
Razia Khan, managing director and chief economist, Africa and Middle East Global Research at Standard Chartered Bank, said the 350-basis-point cut came as a surprise, although the changes to the corridor blunt its overall impact.
‘Against expectations, the Central Bank of Nigeria cut its policy rate by 350bps, to 23.0 percent, from 26.5 percent. Changes were also made to the asymmetric corridor around the policy rate, to +50bps/-300 bps, from a previous +50bps/-450bps,’ Khan said.
She noted that the new SLF rate is now 23.5 percent, compared with 27 percent previously, while the theoretical floor on interest rates, represented by the SDF, has fallen to 20 percent from 22 percent.
Khan said the CBN, while highlighting the downtrend in inflation as a consequence of earlier monetary tightening, was presenting the decision less as conventional monetary easing and more as a recalibration aimed at strengthening the transmission mechanism.
‘Policy will remain ‘restrictive’ going forward, and geopolitical risks could slow the ‘normalisation’ of policy,’ she said.
According to her, OMO yields were already around the level implied by the new floor on rates and had since moved lower, although modestly.
She added that some commentators had linked the move to the new memorandum of understanding establishing cooperation between the fiscal and monetary authorities, arguing that it could boost demand for longer-duration securities and ultimately lower Nigeria’s debt-service costs.
Others, she said, had raised concerns over Nigeria’s reliance on portfolio inflows and whether the CBN could ease meaningfully when the United States Federal Reserve is expected to tighten.
Khan said she believes the CBN can ease despite these external considerations, although petroleum product prices could put pressure on inflation beyond the harvest months.
She said there remains scope for further monetary easing next year after the elections.
Ayodele Ebo, chief executive officer of MDU Capital, said the governor’s description of the decision as a ‘recalibration’ suggests that the CBN is bringing the MPR closer to prevailing money-market and fixed-income rates.
He said the MPR had previously been significantly above market rates, creating a disconnect and reducing its effectiveness as a policy signal.
‘The immediate impact on fixed-income yields may be limited because market rates had already adjusted, but the decision should support lower borrowing costs over time and improve sentiment in the equities market,’ Ebo said.
He added that the adjustment was positive for the market but did not signal a return to cheap money.
Adebowale Funmi, head of Research at Parthian Securities, said the CBN governor’s description of the decision as a recalibration rather than conventional easing reflected the significant disconnect between the 26.5 percent MPR and prevailing market rates.
‘The CBN governor’s description of the decision as a recalibration, rather than conventional easing, reflects the significant disconnect between the 26.5 percent MPR and prevailing market rates, with Treasury bills and OMO yields trading below 20 percent,’ Funmi said.
She said the adjustment was therefore aimed at bringing the policy rate closer to actual market conditions and improving the transmission of monetary policy to the broader economy.
‘For the market, the recalibration should strengthen the signalling role of the MPR and provide greater alignment between the policy rate and funding conditions. It could also support credit growth and economic activity at the margin,’ she said.
However, Funmi said the adjustment should not be interpreted as the beginning of an aggressive easing cycle, as the CBN is likely to remain guided by the inflation trajectory, liquidity conditions and the extent to which market rates respond to the adjustment.
Ayodele Akinwunmi, chief economist at United Capital Plc, said the CBN was seeking to align the MPR with interbank rates and other market rates.
‘What the CBN governor is trying to communicate is that the decision to reduce the MPR to 23 percent with the asymmetric corridor of +0.5%/-3.0 percent around the MPR is to align the MPR to where the interbank rates and other market rates are,’ Akinwunmi said.
He, however, noted that the adjustment still represented a form of policy easing because banks would now place excess funds with the CBN at 20 percent, compared with 22 percent previously, while borrowing from the central bank as lender of last resort would cost 23.5 percent, compared with 27 percent previously.
The CBN retained the Cash Reserve Ratio (CRR) at 45 percent for Deposit Money Banks, 16 percent for Merchant Banks and 75 percent on non-Treasury Single Account public-sector deposits.
The unchanged reserve requirements indicate that while the CBN has adjusted the price of money and narrowed the policy corridor, it has not simultaneously relaxed the existing liquidity controls on banks.
Ubah Jeremiah, chief investment officer of VNL Capital Asset Management, described the 350-basis-point reduction as a significant surprise, saying the scale of the move indicated that the CBN was responding to changes in inflation, naira stability and external reserves.
He said the stronger naira and healthier external reserves had provided the CBN with room to reduce the cost of credit without necessarily loosening liquidity conditions indiscriminately.
For the real economy, Jeremiah said a lower MPR should begin to filter through to lending rates, potentially reducing working-capital costs, improving access to consumer credit and easing debt-servicing costs.
He said the magnitude of the reduction suggested that the CBN was seeking to move the benchmark rate closer to the prevailing economic and market conditions rather than adjusting it incrementally.
The next MPC meeting is scheduled for November 24, 2026.