CBN cuts interest rate to 27%, eyes $1bn monthly inflows

By Chinwendu Obienyi

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN),  yesterday, reduced the Monetary Policy Rate (MPR) by 50 basis points to 27 per cent, in a cautious shift that reflects sustained disinflation and improving macroeconomic conditions.

Furthermore, the committee, while welcoming the progress in the ongoing recapitalisation exercise, revealed that 14 banks have fully met the new capital requirements.

Announcing the outcome of the Monetary Policy Committee (MPC) meeting in Abuja, CBN Governor, Olayemi Cardoso, said the decision was driven by five consecutive months of disinflation, projections of further decline in inflation, and the need to support economic recovery.

The Committee also introduced a new 75 per cent Cash Reserve Requirement (CRR) on non-Treasury Single Account (TSA) public sector deposits, while raising the CRR for commercial banks to 45 per cent and retaining that of merchant banks at 16 per cent. The liquidity ratio was left unchanged at 30 per cent.

Cardoso explained that the adjustment to the Standing Facilities Corridor around the MPR to +250/-250 basis points, was aimed at improving interbank market efficiency and strengthening monetary policy transmission.

“The MPC acknowledged the prevailing stability in the macroeconomic environment, which has created some headroom to ease policy in support of growth.

“The new CRR framework is also designed to enhance liquidity management and curb excess funds in the banking system”, he said.

According to the CBN, headline inflation (year-on-year) moderated further to 20.12 per cent in August 2025 from 21.88 per cent in July, while core inflation eased to 20.33 per cent from 21.33 per cent. Food inflation also slowed to 21.87 per cent, driven by declines in the prices of staples such as rice, maize, millet, and beans.

On a month-on-month basis, headline inflation dropped sharply to 0.74 per cent in August from 1.99 per cent in the preceding month, marking the strongest pace of disinflation in five months.

The MPC attributed this moderation to the impact of earlier monetary tightening, exchange rate stability, increased capital inflows, lower petrol prices, and improved crude oil output.

Nigeria’s economy also showed signs of resilience, with GDP growth accelerating to 4.23 per cent in Q2 2025 from 3.13 per cent in Q1. The oil sector rebounded strongly, expanding by 20.46 percent compared to just 1.87 per cent in the previous quarter, a development expected to further boost external reserves and support foreign exchange market stability.

Gross external reserves rose to $43.05 billion as of September 11, 2025, compared with $40.51 billion at the end of July, providing 10.28 months of import cover. The current account surplus also widened to $5.28 billion in Q2, up from $2.85 billion in Q1.

Cardoso projected stronger foreign exchange inflows, setting a target of at least $1 billion in monthly inflows to deepen FX liquidity and sustain naira stability.

“The MPC emphasised the importance of continuous capital inflows to the FX market and reaffirmed its commitment to policies that would further boost reserves.

“Our reserves are on an upward trajectory, now at their highest since 2019. Initiatives such as the non-resident Naira-settled FX market (NRBVN) have boosted inflows significantly from around $200 million monthly at inception to well over double that within a year. “Our next target is $1 billion monthly inflows, which we are confident of achieving through new initiatives, openness, and building investor confidence. This will ensure reserves continue to grow, strengthening Nigeria’s external position”, Cardoso said.

“The Committee also noted the termination of forbearance measures and waivers on single obligor limits, describing it as a step toward enhanced transparency, risk management, and resilience in the banking sector.

“The removal of these measures is transitionary and poses no threat to the soundness of the financial system,” Cardoso assured. While expressing optimism about the inflation and growth outlook, the MPC flagged risks from persistent excess liquidity in the banking system, largely from fiscal releases on the back of improved revenues. The Committee said this underscored the need for continued vigilance and firm liquidity management.

On global developments, the MPC cited projections of stronger output recovery supported by trade negotiations and monetary easing in advanced economies, but warned that geopolitical tensions and trade uncertainties could disrupt the outlook.

Overall, the Committee maintained a data-driven stance, pledging to remain proactive in balancing price stability with growth.