The Central Bank of Nigeria (CBN) has made a decisive turn in its monetary stance by trimming its Monetary Policy Rate (MPR) by 50 basis points, lowering it from 27.5% to 27%. The move, announced after the 302nd Monetary Policy Committee (MPC) meeting on September 22–23, 2025, marks the first policy rate cut in five years. It reflects growing confidence that the wave of inflation which has gripped Africa’s largest economy is finally easing.

Beyond the symbolic importance of easing after years of tight policy, the CBN also moved to adjust the Cash Reserve Ratio (CRR) for banks and introduced fresh liquidity management measures. Together, these steps point to a delicate balancing act: stimulating economic recovery while keeping inflationary risks in check.

Build the future you deserve. Get started with our top-tier Online courses: ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Let Serrari Ed guide your path to success. Enroll today.

Why the CBN is Cutting Rates Now

CBN Governor Olayemi Cardoso explained that the MPC’s decision was underpinned by five consecutive months of disinflation. Nigeria’s inflation rate, which peaked above 30% in 2024, has been steadily moderating, reaching 20.12% in August 2025. According to Reuters, this slowdown reflects both structural adjustments—such as the rebasing of the Consumer Price Index—and the impact of earlier monetary tightening.

Cardoso told reporters that easing the MPR was necessary to support credit growth and ease financing burdens on households and businesses. He emphasized that the bank remained committed to price stability but recognized the need to balance growth with disinflation.

This cautious tone is important. Some analysts had predicted a larger cut of 75 basis points, but the MPC settled on 50. According to the Financial Times, the committee wanted to avoid the impression of aggressive easing that could unsettle investors or undermine confidence in Nigeria’s inflation-fighting credentials.

Adjustments to Banks’ Reserve Requirements

One of the most closely watched decisions was the change in reserve requirements. The CRR for commercial banks, previously set at a globally high 50%, was trimmed to 45%. The adjustment frees up liquidity in the banking system, theoretically giving banks more room to lend to the private sector. However, the CRR for merchant banks was left unchanged at 16%, signaling selective relief rather than a wholesale loosening.

The CBN also introduced a new 75% CRR specifically for non-Treasury Single Account (TSA) public sector deposits. This targeted measure is designed to limit government-related liquidity circulating outside official TSA structures, which the bank fears could destabilize money markets. TVC News described this as a “tightening of control over government liquidity,” even as broader credit conditions were eased.

By retaining the liquidity ratio at 30% and keeping the asymmetric corridor around the MPR at +260/-250 basis points, the CBN signaled that it remains watchful over volatility in interbank markets. In other words, this easing cycle is cautious, incremental, and designed to test the waters.

Market Reactions: Naira, Bonds, and Stocks

Financial markets reacted positively. The Naira strengthened both in the official Investors and Exporters (I&E) window and in the parallel market. As reported by PM News Nigeria, the official exchange rate improved to ₦1,487.37 per U.S. dollar, compared with ₦1,488.60 a day earlier. In the parallel market, the Naira firmed to ₦1,520 from ₦1,522. While the gains are modest, they reflect renewed confidence among traders that monetary policy will remain credible.

Bond and money market players also welcomed the move. Yields on government securities edged lower, with expectations of improved liquidity driving demand. Analysts at London Loves Business suggested that equity markets, which have been relatively subdued in 2025, could benefit from lower borrowing costs and improved investor sentiment.

A Mixed Reception Among Stakeholders

Business Leaders Seek More

For Nigeria’s private sector, the rate cut is a welcome relief, but many believe it is only a first step. Business groups told Punch that real impact would depend on whether commercial banks ease lending rates and expand credit to struggling small and medium-sized enterprises. Several industry associations also called for complementary fiscal measures, arguing that monetary easing alone cannot offset structural constraints such as poor infrastructure and energy costs.

Analysts Warn on Inflation Risks

Economists are more cautious. They warn that inflation, though moderating, remains high by global standards. At over 20%, Nigeria’s inflation rate is still well above the CBN’s long-term target of single digits. Premium Times highlighted concerns that political pressures in an election year could lead to expansive fiscal spending, undermining the gains of disinflation.

Others fear that the high CRR—still at 45% even after the cut—may prevent banks from significantly expanding lending. As Finance in Africa noted, Nigeria’s CRR remains one of the stiffest globally, and until it is brought closer to regional norms, credit creation may remain sluggish.

One decision can change your entire career. Take that step with our Online courses in ACCA, HESI A2, ATI TEAS 7, HESI EXIT, NCLEX-RN, NCLEX-PN, and Financial Literacy. Join Serrari Ed and start building your brighter future today.

The Broader Economic Context

Nigeria has struggled with a slow recovery since the pandemic years, weighed down by debt service obligations, volatile oil earnings, and an underperforming non-oil sector. Growth in 2024 was 2.3%, below the population growth rate, meaning real per-capita incomes continued to fall. The International Monetary Fund has urged Nigeria to accelerate reforms in energy pricing, tax collection, and trade policy to unlock growth potential.

Monetary tightening over the past five years was critical in preventing runaway inflation, but it also squeezed credit flows and weakened domestic demand. With inflation now easing, the CBN is under pressure to engineer a soft landing—relaxing policy just enough to revive growth without reigniting inflationary pressures.

International Comparisons

Nigeria’s move mirrors similar decisions in other emerging markets where inflation has cooled. In Kenya, the central bank trimmed its benchmark rate earlier this year after inflation stabilized around 6%. Meanwhile, Ghana has maintained tight policy to defend its currency amid IMF program requirements. Nigeria’s cautious 50 basis point cut reflects a middle ground—acknowledging the need for growth support while keeping an eye on capital flows and external balances.

Global financial markets are also watching Nigeria closely. The U.S. Federal Reserve and the European Central Bank are both expected to hold rates steady for longer, creating a high global interest rate environment. This puts pressure on frontier economies like Nigeria to maintain attractive yields for foreign investors. By cutting rates only modestly, the CBN is signaling that Nigeria remains an attractive carry-trade destination.

Key Risks Ahead

Despite the optimism, several risks remain:

• Inflationary shocks: Food and energy prices remain volatile. Any supply chain disruption or subsidy reversal could drive inflation upward again.
  
• Fiscal policy slippage: Nigeria’s large budget deficit means government borrowing could offset the liquidity impact of lower rates.
  
• Weak credit transmission: If banks remain risk-averse or constrained by high CRR, lower rates may not translate into real lending growth.
  
• External shocks: Oil price swings, geopolitical tensions, or global rate hikes could pressure Nigeria’s currency and reserves.

Outlook: A New Easing Cycle?

Will this be a one-off cut or the start of a new cycle? According to Reuters, analysts are divided. Some believe the CBN is laying the groundwork for gradual easing through 2026 if disinflation continues. Others see it as a tactical move ahead of the election year to relieve pressure without abandoning monetary discipline.

What is clear is that Nigeria’s central bankers are cautiously optimistic. By combining a modest rate cut with selective CRR adjustments and tight controls on government liquidity, the CBN is attempting to steer the economy toward stability. Whether this gamble pays off will depend not only on monetary policy but also on fiscal discipline and structural reforms.

Conclusion

The CBN’s decision to cut rates to 27% and ease the CRR marks a turning point in Nigeria’s monetary policy. It signals confidence in the country’s disinflationary path and recognition of the need to support growth. Yet, the cautious approach and continued high reserve requirements underscore that Nigeria’s monetary authorities remain wary of the risks ahead.

If inflation continues to fall and fiscal policy remains aligned, more easing could follow in 2026. But if external shocks or political pressures intervene, the CBN may once again be forced to pivot back to tightening. For now, businesses and investors can take comfort in the fact that Nigeria’s long, painful tightening cycle has finally given way to a cautious, but meaningful, turn toward growth.

Ready to take your career to the next level? Join our Online courses: ACCA, HESI A2, ATI TEAS 7 , HESI EXIT  , NCLEX – RN and NCLEX – PN, Financial Literacy!🌟 Dive into a world of opportunities and empower yourself for success. Explore more at Serrari Ed and start your exciting journey today! ✨

Track GDP, Inflation and Central Bank rates for top African markets with Serrari’s comparator tool.

See today’s Treasury bonds and Money market funds movement across financial service providers in Kenya, using Serrari’s comparator tools.

photo source: Google

By: Montel Kamau

Serrari Financial Analyst

24th September, 2025