Nigeria CBN Cuts Interest Rate After Three Years, MPR Falls to 27%

Why the CBN Chose to Ease Policy Now

After a three‑year stretch of tight monetary stance, the Central Bank of Nigeria (CBN) finally decided to pull the lever a little. On September 22‑23, 2025, the 302nd Monetary Policy Committee (MPC) meeting saw the Monetary Policy Rate (MPR) trimmed by 50 basis points, landing at 27.00 per cent. The decision was not taken on a whim; it reflected a clear trend of disinflation that has persisted for five consecutive months, with the inflation index edging down from double‑digit highs toward the mid‑teens.

Governor Yemi Cardowo, who chaired the meeting, highlighted that the inflation outlook for the rest of 2025 remains on a downward trajectory. With price pressures easing, the CBN felt it could afford a modest opening while still guarding against a premature resurgence of inflationary forces. The committee’s unanimity – all twelve members were present and agreed – signalled a collective confidence that the economy can tolerate a gentler stance.

The rate cut is the most visible element of a broader policy package. The MPC adjusted the Standing Facilities corridor to a +/- 250‑basis‑point band around the MPR. This tweak aims to smooth inter‑bank market operations and enhance the transmission of policy rates to borrowers and savers across the financial system.

What the New Liquidity Rules Mean for Banks and the Economy

Liquidity management received a fresh set of rules. The Cash Reserve Ratio (CRR) for commercial banks was raised to 45 percent, while the CRR for merchant banks stayed at 16 percent. More strikingly, the CBN introduced a 75 percent CRR on non‑Treasury Single Account (TSA) public‑sector deposits, a move designed to curb excess liquidity that could reignite price pressures.

The Liquidity Ratio, a separate tool that ensures banks hold a minimum amount of liquid assets, was left unchanged at 30 percent. By leaving this lever steady, the CBN signals that while it wants to ease borrowing costs, it is not ready to flood the market with unchecked cash.

For businesses and consumers, the Nigeria interest rate cut translates into lower borrowing costs on loans, mortgages, and corporate credit lines. In theory, cheaper finance should spur investment, support small and medium enterprises, and lift consumer spending. However, the real‑world impact will hinge on how effectively the lower rate filters through the banking sector’s pricing models.

Analysts are watching the foreign exchange market closely. A softer monetary stance could ease pressure on the naira if it encourages capital inflows, yet it also risks weakening the currency if investors interpret the move as a sign of lingering economic fragility. So far, market reaction has been cautiously optimistic, with bond yields edging down and equity indices showing modest gains.

Overall, the CBN’s strategy appears to be a balancing act: supporting the fragile recovery while staying vigilant against a resurgence of inflation. The next few quarters will reveal whether the disinflation trend holds and whether the new CRR framework stabilises liquidity without choking credit growth. The MPC’s next meeting, slated for early 2026, will likely reassess these dynamics and decide if further easing or a return to tighter policy is warranted.