In a landmark decision that signals a pivotal shift in Nigeria’s monetary policy framework, the Central Bank of Nigeria (CBN) on Tuesday, September 23, 2025, reduced its benchmark interest rate, the Monetary Policy Rate (MPR), by 50 basis points, bringing it down to 27% from 27.5%. This marks the first rate cut in five years, a move that has been widely interpreted as a strategic effort to stimulate economic recovery and foster growth in an economy grappling with multifaceted challenges. The announcement, made by CBN Governor Olayemi Cardoso following a two-day Monetary Policy Committee (MPC) meeting in Abuja, also included adjustments to other key policy levers, reflecting a nuanced approach to balancing growth and stability.
This historic policy shift comes after a prolonged period of monetary tightening aimed at curbing inflation and stabilizing the naira. The last time the CBN implemented a rate cut was in September 2020, when the MPR was lowered from 12.5% to 11.5% to mitigate the economic fallout from the COVID-19 pandemic. Since then, the apex bank had adopted an aggressive tightening stance, with the most recent hike in September 2024 pushing the MPR to 27.25% from 26.25% in May of the same year. However, the latest decision to ease monetary policy is grounded in five consecutive months of sustained disinflation, which has created a window for the CBN to pivot toward fostering economic growth.
Details of the Policy Adjustments
In addition to the 50-basis-point reduction in the MPR, the CBN introduced several complementary changes to its monetary policy framework. The asymmetric corridor around the MPR, which governs the rates at which banks can borrow from or lend to the CBN, was adjusted to +250/-250 basis points. This change provides greater flexibility for financial institutions in managing liquidity while aligning with the central bank’s broader objectives.
The Cash Reserve Ratio (CRR) for Deposit Money Banks was reduced from 50% to 45%, a move designed to increase the lending capacity of commercial banks by freeing up a portion of their reserves. Meanwhile, the CRR for Merchant Banks was retained at 16%, reflecting a targeted approach to different segments of the financial sector. The Liquidity Ratio, which mandates the proportion of liquid assets banks must hold, remained unchanged at 30%. Additionally, the CBN introduced a new 75% CRR for non-public sector deposits, a measure aimed at ensuring prudent management of liquidity in the banking system.
These adjustments collectively signal the CBN’s intent to create a more conducive environment for lending and investment, particularly in a country where businesses have faced significant challenges due to high borrowing costs and constrained access to credit.
Rationale Behind the Policy Shift
CBN Governor Olayemi Cardoso, in his address following the MPC meeting, emphasized that the decision to ease monetary policy was informed by a careful assessment of Nigeria’s macroeconomic conditions. The sustained disinflation observed over the past five months provided the MPC with the confidence to shift gears from a singular focus on inflation control to supporting economic recovery. Inflation, which had been a persistent challenge, has shown signs of moderation, creating room for the CBN to adopt a more growth-oriented stance.
Cardoso highlighted that the rate cut and accompanying measures aim to stimulate economic activity by reducing the cost of borrowing, encouraging investment, and boosting output across key sectors. He noted that the prolonged period of high interest rates had stifled credit availability, particularly for small and medium enterprises (SMEs), which form the backbone of Nigeria’s economy. By lowering the MPR and reducing the CRR, the CBN seeks to unlock financing for businesses, enhance financial intermediation, and create a ripple effect that supports job creation and economic resilience.
The decision also reflects a broader recognition of the need to balance inflation control with economic growth. While the CBN’s aggressive tightening over the past few years succeeded in stabilizing the exchange rate and curbing inflationary pressures, it came at the cost of constrained credit and higher funding costs for businesses. The current policy shift is thus a strategic pivot aimed at addressing these challenges while sustaining the gains made in macroeconomic stability.
Expert Reactions and Economic Implications
The CBN’s decision has elicited positive reactions from economic analysts and stakeholders, who view it as a timely intervention to address Nigeria’s economic challenges. Dr. Muda Yusuf, Director and CEO of the Centre for the Promotion of Private Enterprise (CPPE), described the policy easing as “a welcome and timely intervention” that could catalyze growth and investment. Yusuf, a respected voice in Nigeria’s economic policy discourse, argued that the high interest rates of recent years had significantly constrained credit availability, raised funding costs, and stifled business expansion.
According to Yusuf, the reduction in the MPR and CRR will have far-reaching implications for the Nigerian economy. By expanding banks’ lending capacity, the policy is expected to lower borrowing costs, making it easier for businesses—particularly SMEs—to access affordable financing. This, in turn, is likely to stimulate new investments, boost output, and create job opportunities, particularly in sectors such as manufacturing, agriculture, and services, which are critical to Nigeria’s economic diversification efforts.
Yusuf also emphasized the role of banks in financial intermediation, noting that the policy changes would strengthen their ability to channel funds to productive sectors of the economy. He highlighted that SMEs, which account for a significant share of employment and economic activity in Nigeria, stand to benefit significantly from improved access to credit. This could help address the high unemployment rate and stimulate consumer spending, further supporting economic recovery.
However, Yusuf cautioned that the success of the CBN’s monetary easing would depend on complementary fiscal and structural reforms. He stressed the importance of sustained fiscal consolidation, investment in critical infrastructure, and regulatory reforms to create an enabling environment for businesses. Additionally, he underscored the need for stronger action to address insecurity, which remains a significant barrier to economic growth in many parts of Nigeria.
“The MPC’s decision represents a strategic pivot from stabilization to growth acceleration,” Yusuf stated. “If sustained and supported by fiscal and structural reforms, it will help build a more resilient, inclusive, and growth-oriented Nigerian economy.”
Contextualizing the Policy Shift
The CBN’s decision to cut interest rates must be understood within the broader context of Nigeria’s economic trajectory. Over the past decade, the country has faced significant challenges, including volatile oil prices, foreign exchange shortages, and persistent inflation. The COVID-19 pandemic exacerbated these issues, leading to a sharp economic contraction in 2020. While the economy has since shown signs of recovery, growth remains uneven, with many sectors still grappling with structural constraints.
The CBN’s aggressive monetary tightening in recent years was driven by the need to address runaway inflation and stabilize the naira, which had come under significant pressure due to external shocks and domestic challenges. The series of rate hikes, culminating in the September 2024 increase to 27.25%, helped rein in inflation and restore confidence in the currency. However, these measures also had unintended consequences, including higher borrowing costs that stifled investment and slowed economic activity.
The sustained disinflation observed in recent months has provided the CBN with the flexibility to recalibrate its approach. By lowering the MPR and adjusting other policy levers, the central bank is signaling its confidence in the economy’s ability to absorb a more accommodative monetary stance. This move aligns with global trends, as central banks in other emerging markets have also begun easing monetary policy in response to moderating inflation and improving economic conditions.
Broader Economic and Social Implications
The CBN’s decision is expected to have wide-ranging implications for Nigeria’s economy and society. By reducing borrowing costs, the policy is likely to encourage investment in key sectors such as agriculture, manufacturing, and technology, which are critical to Nigeria’s long-term development goals. Increased investment could lead to higher productivity, greater economic output, and improved living standards for millions of Nigerians.
SMEs, which employ a significant portion of the workforce, are likely to be among the biggest beneficiaries of the policy shift. These businesses, which often struggle to access affordable credit, could see improved access to financing, enabling them to expand operations, hire more workers, and contribute to economic growth. This is particularly important in a country with a young and growing population, where job creation is a critical priority.
The policy is also expected to have a positive impact on consumer spending. Lower borrowing costs could enable households to access credit for major purchases, such as homes and vehicles, thereby stimulating demand and supporting economic activity. Additionally, increased lending capacity for banks could lead to greater financial inclusion, as more individuals and businesses gain access to financial services.
However, the success of the policy will depend on several factors, including the CBN’s ability to maintain macroeconomic stability and the government’s commitment to implementing complementary reforms. Inflation, while moderating, remains a concern, and any resurgence could undermine the benefits of the rate cut. Similarly, external factors such as global commodity prices and exchange rate fluctuations could pose risks to the policy’s effectiveness.
Challenges and Risks
While the CBN’s decision has been widely welcomed, it is not without risks. One key challenge is the potential for inflationary pressures to re-emerge, particularly if global economic conditions deteriorate or domestic supply-side constraints persist. Nigeria’s reliance on imported goods, coupled with logistical bottlenecks and insecurity, could drive up prices, offsetting the benefits of monetary easing.
Another challenge is the need for fiscal discipline to complement the CBN’s efforts. Without sustained fiscal consolidation and investment in infrastructure, the impact of the rate cut may be limited. For example, poor transportation networks and unreliable power supply continue to hamper productivity and increase business costs, undermining the potential benefits of lower borrowing costs.
Insecurity remains a significant barrier to economic growth, particularly in regions affected by insurgency, banditry, and communal conflicts. These issues disrupt agricultural production, deter investment, and create uncertainty for businesses. Addressing these challenges will require coordinated efforts between the CBN, the federal government, and state authorities.
The Path Forward
The CBN’s decision to lower interest rates marks a turning point in Nigeria’s economic policy landscape. By prioritizing growth and investment, the central bank is laying the foundation for a more dynamic and inclusive economy. However, the success of this policy will depend on the broader economic and political environment.
To maximize the benefits of monetary easing, the government must prioritize fiscal and structural reforms. Investments in critical infrastructure, such as roads, railways, and power, are essential to reducing business costs and improving productivity. Regulatory reforms to streamline business processes and improve the ease of doing business will also be critical in attracting investment and fostering growth.
Moreover, addressing insecurity and promoting social stability will be key to creating a conducive environment for economic activity. The government must work with security agencies and local communities to address the root causes of conflict and restore peace in affected regions.
The CBN, for its part, must remain vigilant in monitoring inflationary trends and exchange rate dynamics. While the current disinflation provides room for easing, the central bank must be prepared to adjust its stance if conditions change. Clear communication and transparency will be essential in maintaining public confidence and ensuring the success of the policy.
Conclusion
The Central Bank of Nigeria’s decision to reduce the Monetary Policy Rate by 50 basis points to 27% represents a bold and timely step toward fostering economic recovery and growth. By easing monetary policy after five years of tightening, the CBN is signaling its commitment to supporting businesses, creating jobs, and building a more resilient economy. The accompanying adjustments to the CRR and asymmetric corridor further underscore the central bank’s strategic approach to balancing growth and stability.
As Nigeria navigates a complex economic landscape, the success of this policy will depend on the government’s ability to implement complementary reforms and address structural challenges. With the right mix of monetary, fiscal, and structural policies, Nigeria has the potential to unlock its vast economic potential and deliver sustainable growth for its citizens. The CBN’s historic policy shift is a critical step in that direction, offering hope for a brighter economic future.