The Central Bank of Nigeria (CBN) has reduced its benchmark interest rate by 350 basis points to 23 per cent from 26.5 per cent, citing moderating inflation, exchange-rate stability and improvements in key macroeconomic indicators.
The decision was taken at the Monetary Policy Committee (MPC) meeting, which concluded on Tuesday after two days of deliberations in Abuja. It represents the CBN’s biggest single rate cut since the current monetary policy tightening cycle began.
CBN Governor, Olayemi Cardoso, who announced the decision at a press briefing, said the committee retained the Cash Reserve Requirement (CRR) at 45 per cent for deposit money banks and 16 per cent for merchant banks.
The MPC also retained the 75 per cent CRR requirement on non-Treasury Single Account (TSA) public-sector deposits.
Cardoso said the 11-member committee welcomed the progress made in the disinflation process, reflected in three consecutive months of decline in headline inflation, despite continuing geopolitical tensions and higher global energy prices.
He explained that the reduction in the Monetary Policy Rate (MPR) was an operational reset aimed at strengthening monetary policy transmission and supporting Nigeria’s transition towards an inflation-targeting framework.
“The observed divergence between the MPR and the prevailing market rates had weakened the effectiveness of monetary policy transmission,” he said.
According to him, the moderation in inflation reflected the impact of previous monetary policy tightening, sustained exchange-rate stability and improved inflation expectations.
The governor also said the committee welcomed the Federal Government’s National Affordable CNG Transit Programme, which he said could help reduce transportation costs and ease inflationary pressures.
He noted that the renewed coordination between fiscal and monetary authorities, following the signing of a Memorandum of Understanding between the Ministry of Finance and the CBN, would also support macroeconomic stability.
Cardoso said the CBN was prepared to monitor liquidity, currency circulation and other monetary aggregates ahead of the general elections.
He said the apex bank had analysed the behaviour of financial and foreign-exchange markets during previous election periods and developed various scenarios to guide its response to possible market volatility.
“With regards to general elections and money volatility, we are ready. We’ve done a lot of analysis in understanding how this market transforms itself during an election period,” he said.
“We’ve sensitised different scenarios. We’ve looked at different models. We’ve debated things to great lengths. So we are ready.”
The governor said the CBN would rely on real-time data rather than assumptions in responding to changes in market conditions.
“We will follow the data. That’s very important. We will not base things on assumptions,” Cardoso said.
He listed currency in circulation, banking-system liquidity, monetary aggregates and foreign-exchange demand among the indicators that would be closely monitored.
Cardoso said volatility was normal in financial markets but assured Nigerians that the CBN would act proactively where necessary.
He added that the apex bank would deploy appropriate instruments to mop up excess liquidity when required and ensure adequate currency availability.
The governor warned against currency abuse and said the CBN would work with law-enforcement agencies to enforce existing regulations.
He also encouraged greater use of electronic payments, saying digital transactions provide an auditable trail and enhance transparency.
As he marked three years as CBN governor, Cardoso identified the return of the apex bank to its core mandates as one of his major achievements.
He said the CBN inherited an economy burdened by substantial Ways and Means financing and extensive intervention programmes, which he said had contributed to excess liquidity and inflationary pressures.
Cardoso recalled that Ways and Means financing had reached N23.7 trillion, while CBN interventions exceeded N10 trillion.
“In terms of my proudest moments and proudest achievements, I think the first thing, given the context that I have laid here today, was that we were able to take the bank back to its core mandates,” he said.
He also cited reforms in the foreign-exchange market, saying the CBN had moved to address the distortions created by multiple exchange-rate windows.
“What has happened is that we have succeeded in closing that gap, unifying the exchange rates,” he said.
The CBN has previously said its reforms were designed to support a more market-driven foreign-exchange system and strengthen monetary policy transmission.
Reacting to the latest MPC decision, Professor Uche Uwaleke described the 350-basis-point rate cut as justified, citing moderating inflation, exchange-rate stability, improved foreign-exchange market liquidity and increased external reserves.
He also linked the decision to the recently signed agreement between the Ministry of Finance and the CBN on closer fiscal and monetary policy coordination.
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