Nigeria’s Central Bank (CBN) delivered its first interest rate cut in five years, reducing the Monetary Policy Rate (MPR) by 50 basis points to 27 percent as sustained disinflation creates space for monetary easing.
The decision, announced Tuesday by CBN Governor Olayemi Cardoso following the Monetary Policy Committee meeting, marks a significant shift after aggressive tightening that saw rates climb from 18.5 percent in mid-2023 to a peak of 27.5 percent earlier this year. Committee members unanimously voted to reduce the rate by 50 basis points from 27.5 percent to 27 percent, according to the governor’s media briefing.
The rate reduction follows five consecutive months of declining inflation, with inflation decreasing to 20.12 percent in August from 21.88 percent in July 2025. This represents the first sustained disinflation period since Nigeria’s inflation crisis peaked above 34 percent in 2024, providing monetary authorities confidence to begin policy normalization.
Equity markets responded cautiously to the policy shift, with Nigeria’s main stock market index, the NSE-All Share, falling to 140,930 points on September 23, 2025, losing 0.40% from the previous session. Market participants had anticipated the policy change, with trading volumes remaining subdued ahead of the announcement.
Banking sector performance showed mixed results in the session preceding the rate cut decision. While Zenith Bank posted gains, other financial institutions including Wema Bank and Access Holdings faced selling pressure. The broader market also saw declines in major industrial names including Dangote Sugar, Lafarge Africa, and NSL TECH.
The committee adjusted the cash reserve ratio (CRR) to 45 percent, and retained the liquidity ratio at 30 percent, according to Cardoso’s statement. The CRR reduction from previous levels aims to inject liquidity into the banking system and support credit extension to the private sector.
Economic fundamentals supported the easing decision, with Nigeria’s economy expanding by 4.23 percent in the second quarter, compared with 3.48 percent in the second quarter 2024, supported by higher oil production, stronger non-oil exports and lower imports.
The policy reversal comes after an aggressive tightening cycle that saw the CBN raise rates four times in 2024 alone, responding to persistent inflationary pressures and currency volatility. The sustained improvement in price stability metrics has now created room for supporting economic growth through lower borrowing costs.
Market analysts expect the rate cut to provide relief to businesses and consumers facing elevated financing costs, particularly small and medium enterprises that have struggled with credit access during the high-rate environment. The policy shift could encourage increased lending activity and economic expansion if sustained.
Looking ahead, market attention will focus on upcoming economic data releases including Purchasing Managers’ Index figures and additional inflation data to gauge whether the disinflation trend will continue. Further monetary easing may depend on maintaining price stability while supporting growth recovery.
The CBN’s decision reflects growing confidence in Nigeria’s macroeconomic stabilization efforts and signals potential for additional policy support if economic conditions continue improving. However, the central bank faces the challenge of balancing growth support with inflation control in Africa’s largest economy.
