By Emmanuel Enitan
The Central Bank of Nigeria (CBN) has delivered its biggest reduction in the Monetary Policy Rate (MPR) in two decades, resetting the benchmark rate by 350 basis points from 26.5 per cent to 23 per cent, as moderating inflation and improving economic conditions provide room for a recalibration of the monetary policy framework.
The decision, announced yesterday by CBN Governor, Olayemi Cardoso, followed the 307th meeting of the Monetary Policy Committee (MPC) in Abuja and represents the largest reduction in the benchmark rate since the 400-basis-point cut recorded in December 2006.
The latest move also takes the MPR to its lowest level since February 2024, when it stood at 22.75 per cent.
However, the apex bank described the decision as an operational “reset” rather than a change in its underlying monetary policy stance, saying the previous 26.5 per cent MPR had become disconnected from rates prevailing in the financial market.
According to the CBN, while the MPR remained at 26.5 per cent, the interbank rate had been trading around 22 per cent, broadly in line with the Standing Deposit Facility rate. This divergence weakened the transmission of monetary policy decisions to the real economy.
Cardoso said the recalibration was therefore aimed at restoring the MPR as the principal signal for interest rates and strengthening the effectiveness of monetary policy as the CBN transitions towards an inflation-targeting framework.
The MPC also recalibrated the Standing Facilities Corridor to +50/-300 basis points around the new MPR, while retaining the Cash Reserve Requirement (CRR) at 45 per cent for deposit money banks, 16 per cent for merchant banks and 75 per cent for non-Treasury Single Account public-sector deposits.
The decision comes against the backdrop of three consecutive months of moderation in headline inflation. Inflation eased marginally to 15.39 per cent in August from 15.43 per cent in July, according to the latest consumer price data.
The CBN also pointed to stronger economic activity, with real gross domestic product growth accelerating to 4.43 per cent in the second quarter of 2026 from 3.89 per cent in the first quarter, while the Composite Purchasing Managers’ Index rose to 52.7 points in August from 51.1 points in July.
The external sector also provided greater room for the policy reset, with the CBN citing stronger foreign exchange buffers and an improvement in the balance of payments position.
Nigeria’s balance of payments surplus rose to $3.51 billion in the second quarter from $2.38 billion in the first quarter, while external reserves reached $55.25 billion as of September 18, 2026, according to the apex bank’s assessment.
The reduction comes after the MPC had maintained the MPR at 26.5 per cent at its May and July meetings, following a 50-basis-point reduction in February from 27 per cent.
For businesses and households, the immediate question will be whether the lower benchmark rate translates into cheaper credit, as lending rates have remained significantly higher than the policy rate.
The CBN’s reset is expected to strengthen monetary policy transmission by bringing the official benchmark closer to actual market conditions, but the extent to which banks pass the adjustment through to borrowers will depend on liquidity conditions, risk pricing and other funding costs.
The move could nevertheless provide some relief to businesses facing elevated financing costs, particularly as the apex bank seeks to balance price stability with economic growth.
The CBN maintained that the recalibration should not be interpreted as an abandonment of its inflation-control objective, noting that the real policy rate remained positive despite the reduction.
The latest decision therefore marks a significant change in the numerical level of Nigeria’s benchmark rate while reflecting the CBN’s attempt to bring its formal policy framework in line with the rates at which financial-market transactions are actually taking place.
