CBN cuts benchmark rate to 23% in its biggest reduction since 2006

The Central Bank of Nigeria (CBN) has made its boldest interest-rate move in years. At the close of the 307th meeting of its Monetary Policy Committee (MPC) in Abuja on Tuesday, 22 September, the bank lowered the Monetary Policy Rate (MPR), the benchmark that anchors borrowing costs across the economy, from 26.5% to 23%.

The 350-basis-point reduction is the largest since December 2006, when the rate was cut by 400 basis points, according to Nairametrics.

A reset, not a U-turn

Governor Olayemi Cardoso chose his words carefully. The CBN presented the decision as an operational reset rather than a shift in policy direction. Its reasoning: while the official rate stood at 26.5%, banks were lending to each other at around 22%, in line with the rate the CBN pays on money banks deposit with it. The benchmark had, in effect, stopped working as a signal. “This is a reset and a recalibration,” Cardoso said.

The committee also narrowed the band around the MPR to +50 and -300 basis points, from -450 on the lower side. That puts the standing lending facility at 23.5% and the standing deposit facility at 20%. Cash reserve requirements were left unchanged at 45% for commercial banks, 16% for merchant banks and 75% for non-TSA public-sector deposits.

The CBN says it is acting from a position of stability. Headline inflation eased to 15.39% in August, the third monthly decline in a row, and Cardoso said external reserves had crossed $55 billion, the highest level in more than 18 years.

Will loans get cheaper?

Not straight away. The Manufacturers Association of Nigeria (MAN) said its members could still face bank lending rates of 27% to 30%. Its Director-General, Segun Ajayi-Kadir, contrasted that with the 8% to 12% he said manufacturers pay in Egypt, Morocco and South Africa. The association wants the CBN to press banks to pass on the cut and to lower the 45% cash reserve requirement.

Bismarck Rewane, Managing Director of Financial Derivatives Company, described it as a very large cut. He suggested the naira could face some pressure as naira assets become less attractive to investors, while cheaper money should ease the government’s heavy debt-service bill.

What next: Watch Treasury bill auctions and the rates banks quote to customers over the coming weeks for signs that the cut is filtering through. The MPC’s next meeting will show whether this was a one-off reset or the start of a wider easing cycle.