CBN says MPR reset due to disconnect with market rates

The Central Bank of Nigeria (CBN) has explained why it “reset” the Monetary Policy Rate (MPR) from 26.5% to 23%, saying the previous benchmark had become disconnected from the rates actually used in the financial markets.

This is contained in an explanatory note on the decisions of the Monetary Policy Committee (MPC), a copy of which was obtained by Nairametrics following the committee’s 307th meeting in Abuja.

According to the CBN, the 350-basis-point adjustment should not be interpreted simply as conventional monetary policy easing, but as an operational realignment designed to restore the MPR as the effective signal for interest rates in the economy.

MPR Had Lost Market Relevance

The CBN identified weak monetary policy transmission as the principal problem behind the reset, explaining that while the official MPR stood at 26.5%, the interbank rate was around 22%, broadly in line with the Standing Deposit Facility (SDF) rate.

Consequently, the MPR had effectively become the de jure policy rate while the SDF became the de facto rate used by the banking system to price financial transactions.

• “There is a clear disconnect between CBN’s Monetary Policy Rate (MPR) and effective market rates.”
• “Thus, the MPR became the dejure rate with the SDF rate as the defacto.”
• “The banking system adopted the SDF rate for pricing financial transactions. This resulted in weak transmission of monetary policy decisions to the real sector.”

To address the divergence, the MPC reset the MPR at 23% and recalibrated the Standing Facilities Corridor to +50/-300 basis points around the MPR, while retaining existing Cash Reserve Requirement levels.

The CBN said bringing the MPR closer to the effective market rate should strengthen monetary policy transmission and restore the primacy of the MPR as the country’s main monetary policy signal.

Why CBN Says Timing Works

The CBN said the reset had been part of broader financial-market reforms and was supported by improvements in Nigeria’s macroeconomic fundamentals.

• The adoption of the Nigerian Overnight Reference Rate (NOFR) as a transaction-based operational benchmark had already improved transparency in money-market operations.
• It also pointed to broad-based disinflation, stronger economic growth, improving external accounts and increased foreign-exchange buffers as factors providing room for the recalibration.
• Headline inflation moderated for the third consecutive month to 15.39% in August 2026 from 15.43% in July, while both food and core inflation declined.
• Real GDP growth accelerated to 4.43% in the second quarter of 2026 from 3.89% in the first quarter, while the Composite PMI increased to 52.7 points in August from 51.1 points in July.

Nigeria’s Balance of Payments surplus increased to US$3.51 billion in the second quarter from US$2.38 billion in the first quarter, while external reserves reached US$55.25 billion as of September 18, 2026.

Formal remittance inflows through International Money Transfer Operators reached US$947 million in July, with cumulative inflows of US$3.8 billion in the first seven months of 2026, up 50.2% from the corresponding period of 2025.

The CBN also cited improved foreign-exchange market stability, banking-sector recapitalisation and stronger monetary-fiscal coordination as supporting conditions for the reset.

CBN Says Policy Remains Restrictive

Despite lowering the headline MPR by 350 basis points, the CBN insists the decision does not represent a switch to accommodative monetary policy. It argued that financial markets had already been operating around the SDF rate for a considerable period, meaning the reset largely brings the official policy framework closer to existing market conditions.

The apex bank said real monetary conditions remain restrictive even after the recalibration.

• “The MPC emphasized that the recalibration of the corridor does not constitute a change in the current monetary policy stance, but rather an operational reset to enhance the effectiveness of monetary policy and support the transition to an inflation targeting framework.”

The CBN said the real policy rate increased to 11.11% in August 2026 from 11.07% in July, which it described as an important buffer for inflation expectations.

• Thirty-three banks have met the revised capital requirements, mobilising approximately N4.65 trillion in new capital, according to the CBN.
• The Bank also cited Nigeria’s re-entry into major emerging-market fixed-income benchmarks, including the JP Morgan global bond index and FTSE Russell Frontier Market index, as an additional sign of improving international investor confidence.

The CBN’s position is therefore that the move to 23% should be viewed primarily as a recalibration of its monetary policy framework to reflect market realities, while maintaining sufficient monetary restraint to anchor inflation expectations and sustain the disinflation process.