By Bassey Udo
#After more than three years of consecutive hikes, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) on Tuesday announced a cut in its controlling monetary policy rate (MPR).
The last time the CBN sliced the MPR was in September 2020, when it was reduced the rate by 100 basis points, from 12.5 to 11.5 percent. Since then, the rate was retained at 11.5 percent till May 2022 when it was raised to 13.0 percent, followed by a trail of successive upward adjustments that peaked at 27.5 percent in July this year, before the latest reduction.
At the end of its two-day 302nd meeting on Tuesday in Abuja, the CBN governor, Olayemi Cardoso, said sustained disinflation over the last five months, continued stability in the foreign exchange market, and a steady decline in the price of premium motor spirit (PMS), popularly called petrol, were clear indicators that the inflation targeting stance of the monetary authority was hitting the right notes, and therefore time to adjust its approach.
In announcing the key decisions of the MPC, Cardoso said that the 12 members unanimously resolved to cut the monetary policy rate (MPR) by 50 basis points, to 27 percent, and adjust the Standing Facilities corridor around the MPR to +250/-250 basis points. MPR, otherwise known as lending rate, represents the rate at which commercial banks would conduct their lending businesses,
The other key decisions of the MPC, the CBN governor said, included the adjustment of the Cash Reserve Ratio (CRR) for commercial banks to 45 percent; retention of merchant banks’ CRR at 16 percent, and introduction of a 75 percent CRR on non-Treasury Single Account (TSA) public sector deposits.
CRR represents the percentage of a bank’s total deposits that must be kept as cash reserves with the apex bank to ensure liquidity in the banking system. The MPC retained the Liquidity Ratio at 30 per cent.
Since its inception in May 2023, the Cardoso-led CBN, knew what he was up against. With challenges posed by policy adjustments by the fiscal authorities on fuel by the removal of fuel subsidy and the instability in the foreign exchange market, the CBN needed to deploy the tightening monetary policy to bring the flow of excess liquidity in the financial system under its control, to strengthen and stabilise the economy that struggled to contend with. From the initial 18.5 percent inherited from the previous, the CBN has revised the MPR by about seven times.
In the last two years, the CBN has been discharging its mandate towards achieving stability in the country’s financial system and economy methodically and strategically.
With the efficiency and proficiency of an experienced sailor determined to steer the ship through a labyrinth of icebergs to a safe berth, the Cardoso management at the apex bank is approaching his assignment with surefootedness and conviction of one who is on top of his game to build a resilient economy for the country one monetary policy at a time.
From inflation target policy to build a strong macroeconomic foundation, Cardoso knows what time is it. He has seen that the evidence that the intervention of the CBN under his leadership has yielded the desired dividend and there is light at the end of the economic tunnel.
Look at the numbers. Headline inflation (year-on-year) has moderated to 20.12 percent in August 2025, from 21.88 percent in July, driven by the decline in both food and core inflation.
On a month-on month basis, headline Inflation also dropped to 0.74 percent in August 2025 from 1.99 percent in the preceding month, with core inflation (year-on-year) easing to 20.33 percent in August 2025, from 21.33 percent in July, due to the slowdown in the cost of services, housing and utilities, as well as transport and logistics.
Food inflation (year-on-year) also moderated to 21.87 percent in August 2025, from 22.74 percent in July, attributed to the decline in the prices of staples, especially rice, guinea corn, maize and millet.
In deciding to reduce the MPR by 20 percent, the CBN governor said the MPC took into consideration the prevailing macroeconomic stability, evidenced by the improvements in several indicators, including sustained disinflation since August 2025, improved output growth, stable exchange rate and robust external reserves.
The deceleration of inflation in the economy in the past five months, he pointed out, helped to broadly anchor people’s expectations, underpinned by monetary policy tightening posture adopted by CBN, driven by exchange rate stability, moderation in the price of petrol, increased capital inflows, and increased crude oil production.
Average daily oil production rose from about 1.41 million barrels per day (bpd) in the second quarter of 2024 to about 1.68 million bpd between April and June, with annual sector growth of 20.46 percent as well as surplus current account balance, which shows that gross external reserves stood at about $43.05 billion on September 11, 2025, compared with $40.51 billion at end-July 2025, with an import cover of 8.28 months.
The country’s current account balance recorded a $5.28 billion surplus as at the Q2 2025 compared with $2.85 billion in Q1 2025.
Recent reviews of the performance of the economy by credible agencies like The Reuters and Bloomberg show the CBN interventions have yielded the desired positive impact, with the economy recording the fastest growth in the last four years, expanding by about 4.23 percent year-on-year, from 3.13 percent in the first quarter of 2025, with the agricultural sector growing by 2.82 percent against 7.45 percent in industry sector.
Despite the decision to reduce the MPR, the MPC was still cautious about the impact of the persistent build-up of excess liquidity in the financial system by considering proactive steps to rein any unforeseen development that is capable of upsetting the momentum in the economic stable.
The MPC noted the negative impact of the humungous monthly disbursements to the states and local governments through the Federation Accounts Allocation Committee (FAAC) as the country looks forward to another year before the 2027 general elections.
Aware of the risks posed by excess liquidity in the banking system, especially in the run up to the 2027 elections, during which period the politicians would spend excessively to prosecute their political campaigns and other activities capable of destabilising the prevailing macroeconomic stability, the MPC adjusted the duration of the standing facilities corridor to boost interbank market transactions and enhance the stability of the market.
With about 14 banks now confirmed to have fully met the new recapitalization requirement, the termination of forbearance measures and waivers on single obligors, which allowed banks under regulatory supervision to discontinue dividend payments, defer executive bonuses, and suspend foreign investments to enhance financial institutions’ capacity to boost their balance sheet, the CBN is committed to guide the financial system into breathing well again.
With the significant impact recorded in terms of macroeconomic stability in the economy as a result of continued collaboration between the monetary and fiscal authorities in managing the economy, the CBN governor urged Nigerians to continue to trust in its leadership’s capacity to pull the economy out the woods, while committing strengthen the collaboration between the two arms.
”It’s good to remind ourselves where we have basically come from two years ago where things were in a very, very bad situation, especially in terms of the macroeconomic conditions, where foreign exchange was difficult, many investors took flight and people lost confidence in the national currency. Today, we have moved forward in stabilizing the economy. The reforms we have undertaken have been open and transparent and we can see the results,” he said.
He said that CBN’s goal is to achieve single digits inflation figures in the near future. “This is a goal we are very resolute about. We will not stop until we get there. So, I want to make that abundantly clear. And that is where we are headed to. Rest assured that as the Central Bank of Nigeria, we will not disappoint in taking the action that needs to be taken to ensure that the well-earned stability in the financial system continues as we have seen it,” the CBN governor added.
