CBN Kicks Off Monetary Easing: Cuts MPR to 27% as Inflation Eases, GDP Strengthens
The Central Bank of Nigeria (CBN) has officially shifted its stance from monetary tightening to easing, as its Monetary Policy Committee (MPC) reduced the Monetary Policy Rate (MPR) from 27.50% to 27%. This 50-basis-point cut signals the CBN’s intention to support economic growth, following five consecutive months of disinflation and stronger GDP growth in Q2 2025.
Why the Rate Cut Now?
CBN Governor Olayemi Cardoso explained that the decision was based on:
• Continuous decline in inflation, which fell to 20.12% in August 2025 from 21.88% in July.
• Improved GDP growth numbers for Q2 2025.
• A stable foreign exchange market and stronger external reserves, which stood at $43.05 billion in September (8.28 months of import cover).
• Positive contributions from falling petrol (PMS) prices and higher crude oil production.
Cardoso stressed that the ultimate goal is to push inflation into single digits, calling the easing “a proactive, data-driven step to balance stability with growth.”
Other Key Decisions by the MPC
1. Standing Facilities Corridor: Adjusted from +500/-100 basis points to +250/-250 basis points to stimulate interbank market activity.
2. Cash Reserve Requirement (CRR):
• Reduced for commercial banks from 50% to 45%.
• Retained at 16% for merchant banks.
• Introduced a new 75% CRR on non-TSA public sector deposits to curb excess liquidity from government funds.
3. Liquidity Ratio: Maintained at 30%.
Banking Sector Update
• The MPC confirmed that the banking system remains resilient, with most indicators within safe limits.
• 14 banks have fully met the new capital requirements under the ongoing recapitalisation exercise.
• Forbearance measures and waivers for single obligors have been terminated, which the CBN says promotes transparency and long-term stability.
Reactions from Experts
• Nigeria Employers’ Consultative Association (NECA) welcomed the move, saying lower interest rates could help businesses access affordable credit, create jobs, and drive growth. However, they cautioned that persistent high CRR and food inflation (still at 21.87%) remain challenges for households.
• Centre for the Promotion of Private Enterprise (CPPE) described the policy shift as a “logical and timely pivot from stabilisation to growth acceleration.” They noted it could expand bank lending capacity, lower borrowing costs, and stimulate investment — particularly for SMEs.
The Bigger Picture
This is the first rate cut after months of aggressive tightening aimed at controlling inflation. The CBN believes that with inflation easing, exchange rate stability, and stronger reserves, Nigeria has enough room to focus on growth.
Still, Cardoso warned about risks:
• Excess liquidity from government fiscal spending (especially FAAC allocations).
• The need to maintain buffers against internal and external shocks.
• Ensuring fiscal authorities complement monetary easing with reforms in agriculture, energy, transport, and infrastructure to reduce costs and boost competitiveness.
Bottom Line
The cut in interest rates marks a turning point — Nigeria’s monetary policy is shifting gears from fighting inflation to supporting growth. If paired with structural reforms and effective fiscal management, this could lower borrowing costs, unlock business expansion, create jobs, and push the economy toward sustainable growth.
The Central Bank of Nigeria (CBN) has officially shifted its stance from monetary tightening to easing, as its Monetary Policy Committee (MPC) reduced the Monetary Policy Rate (MPR) from 27.50% to 27%. This 50-basis-point cut signals the CBN’s intention to support economic growth, following five consecutive months of disinflation and stronger GDP growth in Q2 2025.
Why the Rate Cut Now?
CBN Governor Olayemi Cardoso explained that the decision was based on:
• Continuous decline in inflation, which fell to 20.12% in August 2025 from 21.88% in July.
• Improved GDP growth numbers for Q2 2025.
• A stable foreign exchange market and stronger external reserves, which stood at $43.05 billion in September (8.28 months of import cover).
• Positive contributions from falling petrol (PMS) prices and higher crude oil production.
Cardoso stressed that the ultimate goal is to push inflation into single digits, calling the easing “a proactive, data-driven step to balance stability with growth.”
Other Key Decisions by the MPC
1. Standing Facilities Corridor: Adjusted from +500/-100 basis points to +250/-250 basis points to stimulate interbank market activity.
2. Cash Reserve Requirement (CRR):
• Reduced for commercial banks from 50% to 45%.
• Retained at 16% for merchant banks.
• Introduced a new 75% CRR on non-TSA public sector deposits to curb excess liquidity from government funds.
3. Liquidity Ratio: Maintained at 30%.
Banking Sector Update
• The MPC confirmed that the banking system remains resilient, with most indicators within safe limits.
• 14 banks have fully met the new capital requirements under the ongoing recapitalisation exercise.
• Forbearance measures and waivers for single obligors have been terminated, which the CBN says promotes transparency and long-term stability.
Reactions from Experts
• Nigeria Employers’ Consultative Association (NECA) welcomed the move, saying lower interest rates could help businesses access affordable credit, create jobs, and drive growth. However, they cautioned that persistent high CRR and food inflation (still at 21.87%) remain challenges for households.
• Centre for the Promotion of Private Enterprise (CPPE) described the policy shift as a “logical and timely pivot from stabilisation to growth acceleration.” They noted it could expand bank lending capacity, lower borrowing costs, and stimulate investment — particularly for SMEs.
The Bigger Picture
This is the first rate cut after months of aggressive tightening aimed at controlling inflation. The CBN believes that with inflation easing, exchange rate stability, and stronger reserves, Nigeria has enough room to focus on growth.
Still, Cardoso warned about risks:
• Excess liquidity from government fiscal spending (especially FAAC allocations).
• The need to maintain buffers against internal and external shocks.
• Ensuring fiscal authorities complement monetary easing with reforms in agriculture, energy, transport, and infrastructure to reduce costs and boost competitiveness.
Bottom Line
The cut in interest rates marks a turning point — Nigeria’s monetary policy is shifting gears from fighting inflation to supporting growth. If paired with structural reforms and effective fiscal management, this could lower borrowing costs, unlock business expansion, create jobs, and push the economy toward sustainable growth.