The Centre for the Promotion of Private Enterprise (CPPE) is excited by the Central Bank of Nigeria’s (CBN) decision to cut the Monetary Policy Rate (MPR) by 350 basis points, from 26.5 per cent to 23 per cent, calling the move a significant recalibration of the country’s monetary policy framework.
The Monetary Policy Committee (MPC), at its meeting on September 22, 2026, also adjusted the asymmetric corridor around the MPR from +50/-450 basis points to +50/-300 basis points.
The CPPE noted that the size of the rate cut was largely unexpected and signalled a move away from the long-standing restrictive monetary policy toward fostering economic growth, investment, and recovery, while still maintaining price and financial stability. It called the change timely, pointing to improving inflation trends and the rising cost of keeping a tight monetary stance.
According to the organisation, the previous MPR of 26.5 per cent had become increasingly misaligned with inflation of about 15.4 per cent and prevailing money-market rates of around 20 per cent, weakening the signalling function of the policy rate and raising concerns about monetary policy transmission. It said the reduction to 23 per cent should therefore be viewed not merely as monetary easing but as a realignment of the policy rate with prevailing macroeconomic and financial-market conditions.
The CPPE said the decision could provide significant relief to the real sector, where high financing costs have constrained investment, production and working capital, particularly in manufacturing, agriculture, construction and logistics. It said the lower policy rate could reduce the cost of capital, improve business cash flows, stimulate investment and strengthen productive capacity but urged commercial banks to reflect the new monetary environment by progressively reducing lending rates on both new and existing credit facilities.
The organisation also said the rate cut could have positive implications for public finance by reducing the marginal cost of government borrowing and, over time, moderating the Federal Government’s domestic debt-service burden.
It said sustained moderation in interest rates could create additional fiscal space for infrastructure, security, education, healthcare and other development priorities, although the potential benefit would depend on whether the MPR reduction translates into lower yields across the government securities market.
However, the CPPE cautioned that the adjustment could create exchange-rate and portfolio-flow risks, particularly if Nigeria’s monetary policy direction diverges from tightening measures by major central banks. It said the resulting change in interest-rate differentials could affect the attractiveness of naira-denominated assets and potentially trigger portfolio-flow reversals, although improved foreign reserves, greater foreign-exchange market stability and stronger external-sector buffers provide the CBN with greater policy headroom.
The CPPE said lower interest rates alone would not guarantee sustainable economic recovery, stressing the need for complementary fiscal and structural reforms to address energy costs, logistics bottlenecks, insecurity, food-production constraints, infrastructure deficits and regulatory costs. It said the success of the rate cut should ultimately be measured by the extent to which commercial lending rates decline, private investment and productive-sector credit respond, inflation remains contained and the foreign-exchange market remains stable, while urging the CBN to carefully manage liquidity, portfolio-flow and exchange-rate risks.
 |
|
