On Tuesday, September 23, 2025, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) took a commendable decision to reduce the Monetary Policy Rate (MPR) after over four years.
The bold decision which was long expected 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.
The Committee was unanimous in its decision as all the 12 members that were present at the meeting voted to reduce the MPR by 50 basis points to 27.00%.
The Committee also decided to adjust the Standing Facilities corridor around the MPR to +250/-250 basis points, Adjust the CRR for commercial banks to 45 per cent while retaining that of merchant banks at 16 per cent, introduce a 75 per cent CRR on non-TSA public sector deposits, and Keep the Liquidity Ratio unchanged at 30.00 per cent.
This strategic decision aligns with the predictions of some of the financial experts who believe that the time was ripe for the apex bank to ease the tightening stance following the progress so far made to drive down the inflationary pressure.
Speaking on the milestone decision, an Economist, Dr. Paul Alaje, said the 50-basis-point cut is the first-rate reduction since 2020, marking a significant shift after years of tightening monetary policy to curb inflation and stabilize the naira.
Dr. Alaje said the decision was taken against the backdrop of five consecutive months of disinflation, improved foreign reserves, and relative exchange rate stability.
The move, according to him, reflects the CBN’s attempt to balance two objectives: maintaining progress on lowering inflation, while at the same time stimulating growth, reducing the cost of credit, and encouraging investment.
Considerations: Lowering rates aims to stimulate investment, lending, and job creation. Implications of the Rate Cut Positive Outcomes – Lower Borrowing Costs: Businesses and households may benefit from cheaper credit. – Stimulus to Growth: Cheaper credit should encourage consumption and investment. – Support for SMEs: Easier financing may help SMEs and productive sectors. – Investor Confidence: A signal of stability could boost foreign and domestic confidence. – Financial Sector Strengthening: Recapitalisation and liquidity adjustments improve intermediation.
Risks and Downsides – Inflation Still High: At 20%+, inflation remains above acceptable thresholds. – Weak Policy Transmission: Structural bottlenecks limit how much lower rates affect lending. – Excess Liquidity & FX Risks: Too much liquidity could pressure the naira. – Impact on Savers: Lower returns may discourage savings. – Credibility Risk: If inflation rebounds, confidence in the CBN may weaken.
Alaje said the decision represents a cautious shift, not a wholesale reversal. Noting that by trimming the MPR and adjusting reserve requirements, the CBN signals a balance between fighting inflation and supporting growth.
“The decision reflects optimism about disinflation, stronger reserves, and a healthier banking sector. What to Watch Next The effectiveness of this rate cut will depend on: 1. Inflation Data: Continued disinflation may allow further cuts. 2. Exchange Rate Trends: A stable naira is critical. 3. Credit Growth: Banks must transmit the cut through lower lending rates. 4. Fiscal Policy: Government spending could amplify or counter monetary policy. 5. External Shocks: Oil prices, food supply, and global inflation remain risks. Conclusion
“The CBN’s reduction of the policy rate from 27.5% to 27% is a carefully calibrated move, signaling confidence in disinflation and macroeconomic stability. Though modest, it is symbolically important as the first easing in five years. If followed by continued disinflation, stable FX, and improved credit transmission, it could stimulate growth and investor sentiment.
“However, risks remain: inflation is still high, transmission is weak, and external shocks may destabilize progress. The CBN is therefore testing the waters, seeking to stimulate growth without undermining price stability,” he said.
