The Central Bank of Nigeria (CBN) has reduced the policy interest rate by 50 basis points (the MPR) i.e from 27.5% to 27%. This reduces the policy interest rate for the first time since the CBN had been engaged in a tightening policy for the past 5 years.
This is a huge turning point in policy stance after years of continued tightening in an effort to control inflation. It indicates confidence price pressures have now markedly slowed, and it should continue to slow down.
Nigerian headline inflation dropped to 20.12% in August, the fifth straight decline in that timeline. Governor Olayemi Cardoso justified the cut indicating prices pressures could decelerate further in the near term, as long as exchange rates remain stable, capital inflows increase, and reserves grow.
Along with the MPR cut, CBN also lowered the Cash Reserve Requirement (CRR) for commercial banks from 50% to 45% while maintaining the CRR for merchant banks at 16%. The liquidity ratio remains at 30%.
Cardoso said the goal of the CBN is to stimulate growth and reduce costs of funding for households and businesses. The rate cut is intended to encourage consumption, increase credit access, and decrease funding costs for the private sector.
Analysts, however, haved warned that risks persist. Fiscal discipline, management of surplus liquidity, and external economic conditions could still affect the outlook. They caution that the benefits of the rate cut will depend on consistent policy implementation and broader reforms to strengthen the economy.
Despite these concerns, the move should be considered a turning point in terms of monetary policy. It represents CBN willingness to pivot from extreme monetary tightening for inflation reasons, to provide stimulus to the economy.
Read more Nigeria news today at the homepage.