- Cites Easing Inflation, $55.25bn Reserves, FX Stability
- Says This Is A Reset, We Will Not Allow Ourselves To Be Caught Unaware’
- CPPE Challenges Banks To Cut Lending Rates To Businesses
The Central Bank of Nigeria has delivered its biggest interest-rate cut in the current monetary policy cycle, slashing the benchmark Monetary Policy Rate from 26.5 per cent to 23 per cent, while warning that it will aggressively mop up excess liquidity ahead of the 2027 general elections.
The 350-basis-point reduction was announced on Tuesday by CBN Governor, Olayemi Cardoso, at the end of the Monetary Policy Committee’s 307th meeting in Abuja.
Cardoso said the committee had resolved to “reset the monetary policy rate at 23 per cent,” following improved macroeconomic conditions, easing inflation and stronger foreign exchange reserves.
The committee also recalibrated the Standing Facilities Corridor to +50/-300 basis points around the MPR, while retaining the Cash Reserve Requirement at 45 per cent for deposit money banks, 16 per cent for merchant banks and 75 per cent for non-Treasury Single Account public sector deposits.
‘This Is A Reset, Not Easing’
Despite the dramatic cut, Cardoso rejected suggestions that the CBN had abandoned its restrictive monetary policy stance.
“We will stay on the course, which has been a restrictive one, for as long as we have to,” the governor said.
“And that’s why I re-emphasise that you should not see this as an easing. This is a reset and a recalibration. That is all it is.”
He explained that the widening gap between the MPR and prevailing interbank rates had weakened the transmission of monetary policy, making it necessary to realign the benchmark rate with actual market conditions.
According to Cardoso, the CBN’s adoption of the Nigerian Overnight Financial Average as a transaction-based operational benchmark had enhanced transparency in money-market operations, while the latest adjustment was intended to restore the MPR as the principal signal of monetary policy.
“Fundamentals have changed. We are at macroeconomic stability,” Cardoso declared.
“The tight thing that we have done, in our view, has done its job. It has worked. The policy tools that we have used have worked.”
The latest decision came after the MPC kept the MPR unchanged at 26.5 per cent in May and July, following a 50-basis-point reduction in February.
Reserves Hit 18-Year High
The rate cut was supported by stronger external buffers and improving conditions in the foreign exchange market.
Nigeria’s gross external reserves rose to $55.25bn as of September 18, 2026, the highest level in 18 years and sufficient to finance about 11.3 months of imports of goods and services.
The balance of payments surplus also climbed to $3.51bn in the second quarter from $2.38bn in the first quarter, while the current account surplus surged by 67.92 per cent to $7.54bn from $4.49bn.
Cardoso attributed part of the improvement to rising diaspora remittances, saying monthly inflows had increased from about $200m when the CBN intensified its reforms to almost $1bn by July.
He said reforms around Bank Verification Numbers for Nigerians abroad, oversight of International Money Transfer Operators and dedicated settlement accounts had contributed to the increase.
Inflation has also continued to moderate.
Headline inflation fell marginally to 15.39 per cent in August from 15.43 per cent in July, marking the third consecutive monthly decline.
Food inflation dropped to 19.57 per cent from 20.31 per cent, while core inflation declined to 13.29 per cent from 14.97 per cent. Month-on-month headline inflation also slowed sharply to 0.71 per cent from 1.57 per cent.
The MPC attributed the moderation to the effects of earlier monetary tightening, exchange-rate stability and improved inflation expectations.
However, the committee warned that geopolitical tensions in the Middle East and election-related spending could reignite inflationary pressures.
CBN Draws Battle Line Over Election Spending
With the 2027 election cycle underway, Cardoso said the apex bank had prepared to confront any surge in liquidity that could undermine price stability.
“We are ready,” the governor said, adding that the CBN had studied previous election cycles and developed different scenarios for managing their monetary impact.
According to him, the apex bank will closely monitor currency in circulation, banking-system liquidity, monetary aggregates and foreign-exchange demand.
“We will proactively deploy any tools and instruments to mop up any excess liquidity,” Cardoso warned.
“We will not allow ourselves to be caught unaware in any form.”
He said the CBN would ensure adequate currency availability while working with law-enforcement agencies to prevent currency abuse.
Cardoso also urged Nigerians to embrace electronic payments, arguing that digital transactions provide greater transparency and create an audit trail.
The MPC said inflation could moderate further in the short to medium term, supported by exchange-rate stability, the lagged effects of previous monetary tightening and improved food supply during the harvest season.
Economy Expands 4.43%
The MPC’s decision also came as fresh economic data showed stronger growth momentum.
Real Gross Domestic Product expanded by 4.43 per cent in the second quarter of 2026, up from 3.89 per cent in the first quarter.
Non-oil growth accelerated to 4.31 per cent from 3.94 per cent, while oil-sector growth jumped to 7.31 per cent from 2.57 per cent.
The Composite Purchasing Managers’ Index also increased to 52.7 points in August from 51.1 points in July, signalling continued expansion in business activity.
Reflecting on his three years as CBN governor, Cardoso said the apex bank inherited an economy characterised by declining confidence, persistent currency depreciation, high inflation and a dysfunctional foreign exchange market.
He listed the return of the CBN to its core price and financial-stability mandate, exchange-rate unification, banking recapitalisation and rebuilding of external reserves among the major changes implemented under his leadership.
Cardoso also pointed to excessive Ways and Means financing and more than ₦10tn in intervention programmes as having previously injected substantial liquidity into the economy.
On fiscal-monetary coordination, the governor described the recently signed agreement between the CBN and the Federal Ministry of Finance as critical to Nigeria’s planned transition to inflation targeting.
“I think the difference here is that we’ve decided to institutionalise this,” Cardoso said, stressing that coordination should not depend on the individuals occupying public offices.
“You can’t do it with monetary policy alone,” he added, emphasising the importance of fiscal coordination in sustaining low and stable inflation.
The governor further described Nigeria’s return to major global investment indices as a “vote of confidence”, saying it could help attract foreign investment, deepen the capital market and improve foreign-exchange liquidity.
The MPC said future policy decisions would remain data-dependent as it assesses the impact of the recalibrated framework.
Meanwhile, the Centre for the Promotion of Private Enterprise has described the CBN’s 350-basis-point reduction in the Monetary Policy Rate as a major reset that could ease financing pressures on businesses, stimulate investment and strengthen Nigeria’s economic recovery.
The CPPE, in a policy brief signed by its Chief Executive Officer, Dr Muda Yusuf, on Tuesday, September 22, 2026, welcomed the decision by the Monetary Policy Committee to cut the MPR from 26.5 per cent to 23 per cent.
The business advocacy group said the magnitude of the reduction was largely unexpected and marked a significant shift from the prolonged restrictive monetary policy regime.
According to Yusuf, the decision “signals an important rebalancing of monetary policy towards supporting growth, investment and economic recovery, while preserving price and financial-system stability.”
The CPPE also welcomed the adjustment of the asymmetric corridor around the MPR from +50/-450 basis points to +50/-300 basis points, describing it as further evidence of a recalibration of the monetary policy architecture.
‘Timely Reset’ For Businesses
Yusuf said the rate cut had become necessary amid the improving inflation trajectory and the growing burden imposed by an excessively restrictive monetary environment.
He noted that the previous MPR of 26.5 per cent had become increasingly misaligned with inflation of about 15.4 per cent and prevailing money-market rates of around 20 per cent.
According to him, the divergence weakened the signalling function of the policy rate and raised concerns about the effectiveness of monetary policy transmission.
“The reduction of the MPR to 23% should therefore be viewed not merely as monetary easing, but as an important realignment of the policy rate with prevailing macroeconomic and financial-market conditions,” Yusuf said.
He added that the CBN’s description of the move as a “recalibration” or “reset” appropriately captured the policy shift.
The CPPE said the decision could provide significant relief to the real sector, where high financing costs have constrained investment, production, working capital and job creation.
It identified manufacturing, agriculture, construction and logistics among sectors that have been particularly affected by high borrowing costs, given their relatively long investment cycles and tight profit margins.
“The policy adjustment therefore offers an opportunity to reduce the cost of capital, improve business cash flows, stimulate investment and strengthen the productive capacity of the economy,” Yusuf said.
However, he warned that the rate cut would only deliver meaningful economic benefits if commercial banks transmit the reduction to borrowers.
“The ultimate economic value of the decision will depend on transmission,” he said.
Yusuf urged banks to reflect the new monetary policy environment in the pricing of credit, arguing that lending rates on new and existing facilities should progressively decline.
“Without meaningful transmission to borrowers, the impact of the policy adjustment on investment and economic growth would be limited,” he cautioned.
Debt-Service Burden In Focus
The CPPE also identified potentially significant fiscal benefits from the lower-interest-rate environment.
According to Yusuf, the prolonged high-rate regime had contributed to the Federal Government’s rising domestic debt-service burden as government securities competed with high market yields.
He said sustained moderation in interest rates could lower the marginal cost of government borrowing and, over time, reduce domestic debt-service costs.
“This could create additional fiscal space for infrastructure, security, education, healthcare and other development priorities,” Yusuf said.
He, however, stressed that the expected fiscal dividend would depend on whether the MPR adjustment translates into lower yields across the government securities market.
CPPE Warns Of FX, Capital-Flow Risks
Despite its support for the rate cut, the CPPE warned that the magnitude of the adjustment carries potential foreign-exchange and portfolio-flow risks.
Yusuf noted that the divergence between Nigeria’s monetary-policy direction and recent tightening by some major global central banks could affect interest-rate differentials and the attractiveness of naira-denominated assets.
“This creates a potential risk of portfolio-flow reversals and renewed pressure on the foreign-exchange market,” he said.
The CPPE, however, observed that Nigeria was entering the policy transition with stronger external buffers than during previous episodes of monetary easing.
It cited improvements in foreign reserves, greater stability in the foreign-exchange market and stronger external-sector buffers as factors providing the CBN with greater policy headroom.
Yusuf nevertheless urged the apex bank to remain vigilant and deploy instruments, including open-market operations, where necessary to contain excessive volatility and protect exchange-rate stability.
‘Lower Rates Alone Cannot Deliver Recovery’
The CPPE also cautioned against relying solely on monetary easing to revive the economy, arguing that structural supply-side constraints remain major drivers of inflation and business costs.
“Lower interest rates alone cannot deliver sustainable economic recovery,” Yusuf said.
He identified energy costs, logistics bottlenecks, insecurity, food-production constraints, infrastructure deficits and high regulatory costs as persistent pressures on businesses and consumers.
The group therefore called for the monetary recalibration to be complemented by stronger fiscal and structural interventions aimed at reducing production costs, improving productivity, strengthening food and energy security and expanding domestic productive capacity.
According to Yusuf, such measures would be critical to ensuring that lower interest rates translate into increased investment and output rather than renewed inflationary pressure.
The CPPE described the September MPC decision as a “significant and positive turning point” in Nigeria’s monetary policy cycle.
It said the 350-basis-point adjustment could help reduce financing pressures on businesses, strengthen investment prospects, support economic growth and progressively moderate the government’s domestic debt-service burden.
However, Yusuf said the real test would be the extent to which the decision translates into lower commercial lending rates, increased private investment and productive-sector credit, sustained moderation in inflation and stability in the foreign-exchange market.
“The priority should therefore be to ensure effective monetary policy transmission while carefully managing liquidity, portfolio-flow and exchange-rate risks,” he said.
