CBN Cuts Interest Rate to 27% – Relief Still Too Small
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CBN Cuts Interest Rate to 27% – A cautious Step Towards Economic Recovery
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Nigeria’s central Bank (CBN) has lowered its benchmark interest rate to 27%, the first reduction in over five years, signaling a potential shift in monetary policy. However, concerns remain about whether the cut is significant enough to address the challenges faced by businesses.
What Happened: The MPC’s Decision
On Tuesday, following its 302nd meeting in Abuja, the Monetary Policy committee (MPC) of the Central Bank of nigeria (CBN) voted unanimously (12-0) to reduce the benchmark interest rate by 50 basis points, from 27.5% to 27%.This marks the first rate cut since September 2020, when the rate was lowered from 12.5% to 11.5%.
CBN Governor Olayemi Cardoso described the decision as “historic,” emphasizing it was the first cut under his leadership. Alongside the rate cut, the MPC implemented several other key adjustments:
- Standing facilities Corridor: Adjusted to +250/-250 basis points.
- Cash Reserve Requirement (CRR): Increased to 45% for commercial banks, remaining at 16% for merchant banks.
- CRR on public Sector Deposits: A 75% CRR was introduced for non-Treasury Single account (TSA) public sector deposits.
- Liquidity ratio: Maintained at 30%.
Why Now? The Rationale Behind the Cut
The MPC’s decision was primarily driven by sustained disinflationary trends observed over the past five months. Nigeria’s headline inflation rate decreased to 20.12% in August 2025,down from 21.88% in July. Further breakdowns show:
| Inflation Type | August 2025 | July 2025 |
|---|---|---|
| Headline Inflation | 20.12% | 21.88% |
| Food Inflation | 21.87% | 24.05% |
| Core Inflation | 20.33% | 22.75% |
Cardoso also cited projections of continued moderation in inflation throughout the remainder of 2025 and the need to stimulate economic growth as supporting factors. Nigeria’s gross Domestic Product (GDP) growth accelerated to 4.23% in the second quarter of 2025,a notable increase from 3.13% in the first quarter. The oil sector experienced a notably strong rebound, growing by 20.46% compared to 1.87% in the previous quarter.
industry reaction: is It Enough?
While the rate cut was welcomed as a positive step, members of the Organised Private Sector (OPS) expressed concerns that the 50-basis point reduction is insufficient to substantially alleviate the high cost of borrowing. Manufacturers and small businesses continue to struggle with access to affordable credit, hindering their ability to expand operations and contribute to economic growth.
Industry leaders argue that a more substantial rate cut is needed to effectively lower borrowing costs and stimulate investment. They also point to the increased Cash Reserve Requirement (CRR) as a potential constraint on lending capacity, potentially offsetting the benefits of the rate reduction.