The Central Bank of Nigeria (CBN) has reduced its key interest rate by 50 basis points to 27 percent, signaling the first rate cut in five years. The decision, announced after a two-day Monetary Policy Committee (MPC) meeting in Abuja on Tuesday, marks a cautious shift to support economic growth as inflation shows signs of easing.
Governor Olayemi Cardoso explained the move: “The MPC’s decision to lower the monetary policy rate was predicated on the sustained disinflation recorded in the past five months, projections of declining inflation for the rest of 2025, and the need to support economic recovery efforts.”
Alongside the rate cut, the CBN reduced the Cash Reserve Requirement (CRR) for commercial banks from 50% to 45% to encourage lending but imposed a 75% CRR on non-Treasury Single Account public sector deposits to manage excess liquidity. The Standing Facilities Corridor was also widened to ±250 basis points around the MPR.
Cardoso noted that inflation is expected to continue falling due to “the lagged impact of previous rate hikes, the continued stability of the exchange rate, drop in PMS prices and the expected seasonal drop in food prices as the harvest season progresses.”
“The onset of the harvest season is expected to increase local food supply, moderate food prices, and contribute to the overall decline in inflation.” He added.
The MPC unanimously supported the rate cut but warned of risks from excess liquidity. “The Committee observed the persistent build-up of excess liquidity in the banking system, resulting largely from fiscal releases,” Cardoso said, emphasizing the need to preserve macroeconomic stability.
Nigeria’s economy is showing improvement, with GDP growth rising to 4.23% in Q2 2025, supported by a rebound in the oil sector. Foreign reserves also climbed to $43.05 billion, providing over eight months of import cover.
“The Committee acknowledged the continued stability of the foreign exchange market and its critical importance in achieving rapid disinflation,” Cardoso said. “It therefore called on the Bank to continue the implementation of policies that would further boost capital inflows and deepen foreign exchange liquidity.”
