Central Bank of Nigeria Monetary Policy Committee at the end of its bi-monthly meeting cut the benchmark rate (MPR) by 50bps to 27.0%. Additionally, the Cash Reserve Ratio (CRR) of commercial banks was cut by 500bps to 45.0%, while the CRR of Merchant Banks was retained at 16.9%. Furthermore, the MPC introduced a 75.0% CRR on Non Treasury Single Account (TSA) public sector deposit. Economists polled by Reuters had predicted a 75 bps cut, following three “hold” decisions so far this year and six hikes in 2024. The rate cut was predicated on projections for declining inflation for the rest of the year and the need to support the economy, central bank governor Olayemi Cardoso said. The Monetary Policy Committee “will remain proactive through a data-driven policy response,” he continued, adding that the committee was satisfied with improving macroeconomic indicators. Data on Monday showed economic growth picked up to 4.23% year on year in the second quarter, its quickest pace in about four years. Headline inflation slowed to 20.12% year-on-year in August, its fifth consecutive drop, and the naira has strengthened about 3% against the dollar this month after being broadly stable through July and August. Cardoso said the central bank wanted to see inflation in single digits. Inflation in Africa’s most populous country scaled repeated 28-year peaks last year, spurred by President Bola Tinubu’s moves to devalue the naira and cut subsidies since taking office in 2023. But it has been on a downtrend trajectory this year after the statistics office revised its base year and adjusted the weight of items in its price index. Capital Economics analyst David Omojomolo said in a research note that he expected an aggressive easing cycle ahead, with a further 700 basis points of cuts to the central bank’s policy rate by the end of next year.
Meanwhile the Centre for the Promotion of Private Enterprise commended the Central Bank of Nigeria (CBN) and its Monetary Policy Committee (MPC) for their recent decision to ease credit conditions in the Nigerian economy. This marks a significant policy shift toward supporting growth and investment, following an extended period of aggressive monetary tightening to rein in inflation. At its latest meeting, the MPC announced a 50-basis-point reduction in the Monetary Policy Rate (MPR) from 27.5 percent to 27 percent. It also adjusted the asymmetric corridor to +250/-250 basis points around the MPR. In addition, the MPC cut the Cash Reserve Ratio (CRR) of commercial banks by 500 basis points, from 50 percent to 45 percent, while retaining the CRR for merchant banks at 16 percent and maintaining the liquidity ratio at 30 percent. A notable new measure was the introduction of a 75 percent CRR on non-TSA public sector deposits, aimed at containing excess liquidity risks that could arise from fiscal operations. This action is designed to prevent volatility in money supply growth that could undermine recent progress in price stability.
The policy easing comes at a time when the Nigerian economy has recorded five consecutive months of declining inflation, signaling that previous tightening measures are yielding results. Having restored a measure of macroeconomic stability and slowed inflationary pressures, the MPC’s pivot toward growth is both logical and timely. High interest rates in recent quarters have significantly constrained private sector credit, increased the cost of funds, and weighed on business expansion. By lowering the MPR and CRR, the CBN is deliberately working to improve liquidity conditions, reduce borrowing costs, and unlock capital for productive sectors of the economy. CPPE said that the combination of lower MPR and reduced CRR should expand banks’ capacity to create credit, lowering lending rates and making financing more accessible for businesses, especially SMEs. Lower cost of funds will encourage new investments, support business expansion, and enhance capacity utilization in the real sector. This will ultimately stimulate output growth and job creation. A more accommodative monetary environment will enable banks to fulfill their core function of mobilizing savings and channeling them into productive investments, reinforcing financial deepening and economic growth.
The decision to impose a 75 percent CRR on non-TSA public sector deposits is a prudent measure to prevent excessive fiscal-driven liquidity injections from destabilizing the financial system. While this monetary easing is a welcome development, CPPE emphasizes that fiscal policy must play a complementary role to fully unlock growth potential. The fiscal authorities should: Sustain fiscal consolidation to ensure macroeconomic stability and maintain investor confidence. Prioritize critical infrastructure investment to reduce production and logistics costs, improve competitiveness, and enhance productivity. Strengthen the regulatory and institutional framework to foster a more business-friendly environment that attracts domestic and foreign investment.
Address security challenges decisively, as insecurity remains one of the most significant constraints to private sector investment and rural productivity. The MPC’s decision represents a strategic and well-timed policy shift from a phase of stabilization to a phase of growth accelerator. If sustained and complemented by appropriate fiscal and structural reforms, these measures will: Stimulate economic growth and job creation; improve private sector performance and output; boost government revenues through an expanded tax base, and; moderate inflation sustainably in the medium to long term. The CPPE regards this as a step in the right direction toward building a more resilient, inclusive, and growth-oriented Nigerian economy.
Savings, lending rates to drop as MPC cuts monetary policy rate to 27 %, CPPE, market operators welcome decision
