CBN cuts benchmark rate to 23%, narrows corridor as inflation eases nationwide
CBN cut its monetary policy rate by 350 basis points to 23 percent and narrowed the corridor to 23.5 percent for banks borrowing from the apex bank and 20 percent for banks parking surplus funds, describing the move as an operational recalibration rather than a policy easing. The decision came as August inflation slowed to 15.39 percent year-on-year, with month-on-month prices up 0.71 percent and core inflation at 13.29 percent, though food prices remain high. Nigeria’s economy grew 4.43 percent in Q2, posted a Q2 balance-of-payments surplus of $3.51 billion, a current-account surplus of $7.54 billion, and holds gross external reserves of $55.25 billion—about 11.3 months of import cover—while the exchange rate has been relatively steady.
The lower MPR could reduce the cost of new government borrowing, but banks still face a 20 percent opportunity cost on funds, meaning the state must persuade lenders to buy securities even at cheaper rates. Treating the rate cut as an invitation to borrow more could worsen fiscal pressures, especially with election-related spending posing an inflation risk. The CBN warned that if market rates fall because players see the move as loosening, the cut would become a de facto easing, undermining monetary restraint. Success will depend on credible implementation and actual movements in interbank, government securities, lending, and foreign exchange rates.
Will the CBN’s recalibration actually lower borrowing costs for businesses and households, or will banks keep rates high due to liquidity concerns, leaving the intended stimulus unrealized?