In a bold shift from its earlier stance, Nigeria’s Central Bank has cut its benchmark interest rate to 27.00%, marking the first reduction in 2025 after three consecutive holds. The move, described as a cautious tilt toward economic recovery, aims to ease the burden on businesses and stimulate lending. But critics argue the cut is too little, too late.

The decision drew widespread commentary across media outlets including Reuters, which confirmed the cut as the first since 2020. Reuters

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What Changed & Why

At its 302nd Monetary Policy Committee meeting in Abuja, the CBN voted unanimously to reduce the Monetary Policy Rate (MPR) from 27.50% to 27.00%. In tandem, it adjusted other monetary parameters:

• The standing facilities corridor was narrowed to +250 / -250 basis points.
• The Cash Reserve Requirement (CRR) for commercial banks was raised to 45%, while merchant banks remained at 16%.
• A new 75% CRR was introduced on non-TSA public sector deposits.
• The Liquidity Ratio remained unchanged at 30%.

Governor Olayemi Cardoso said the decision was backed by “sustained disinflation over the past five months”, forecasts of falling inflation through the rest of the year, and the pressing need to support economic recovery.

Indeed, headline inflation in August eased to 20.12% from 21.88% in July. Food inflation and core inflation also slowed. Month-to-month, inflation dropped sharply to 0.74% in August, down from 1.99% in July.

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A Mixed Response from the Private Sector

While the rate cut is welcome in theory, many in Nigeria’s organized private sector say it’s too modest to make real impact.

• Segun Ajayi-Kadir of MAN said manufacturers need lending rates closer to single digits; a 0.5% cut does little when real borrowing costs remain high.
• Adewale Oyerinde of NECA warned that high CRRs and other restrictive monetary tools could negate the benefits of the rate cut.
• Dr. Femi Egbesola, representing small business owners, called the reduction a “good start” but insufficient given the scale of credit constraints on SMEs.

The Centre for the Promotion of Private Enterprise echoed this: lower MPR must be accompanied by structural reforms, infrastructure investment, and fiscal discipline to truly unlock growth.

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Macro Indicators & Policy Implications

The timing of the cut is critical. Nigeria’s Q2 2025 GDP growth accelerated to 4.23%, outpacing 3.13% in Q1. The oil sector made strong gains, boosting output.

Foreign reserves also improved, rising to $43.05bn, giving Nigeria an import cover of 8.28 months. In Q2, the country recorded a current account surplus of $5.28bn, up from $2.85bn in Q1.

The CBN highlighted that 14 banks have already met new recapitalisation requirements and said financial stability indicators remain healthy.

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Why This Cut May Not Be Enough

• Nigeria’s interest rate remains among the highest in Africa, even after the cut.
• The CRR on public sector deposits (75%) could dampen liquidity even as lending rates are meant to ease.
• Inflation, while moderating, remains in the double digits, continuing to erode purchasing power—especially food inflation (21.87%).
• Private sector credit costs still haven’t meaningfully declined; many banks won’t lend below the MPR.
• Experts warn that without prosecution of corruption, investment in infrastructure, stable policies, and improved security, the relief from monetary easing may be short-lived.

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What Happens Next

Economists expect further easing if disinflation holds, but flag that the next rate cut must be deeper to significantly reduce borrowing costs. Nigeria must calibrate monetary policy carefully in a volatile political environment and in the run-up to elections.

The success of this policy pivot will depend on how well the CBN coordinates with fiscal authorities, the private sector, and regulators to ensure that monetary stimulus translates into credit for growth, not just asset bubbles.