Experts say CBN’s surprise rate cut could boost growth, pressure FX

Financial and economic experts have described the Central Bank of Nigeria’s (CBN) decision to reduce its benchmark interest rate from 26.5% to 23% as a welcome but unexpected move, marking the first major reduction of its kind in nearly two decades.

The decision, announced by CBN Governor Olayemi Cardoso at the end of the 307th Monetary Policy Committee (MPC) meeting on Tuesday, saw the apex bank cut the Monetary Policy Rate (MPR) by 350 basis points despite widespread expectations that rates would remain unchanged.

While analysts welcomed the move as a potential boost for businesses and economic activity, some cautioned that it could create new risks for foreign exchange inflows and investor sentiment.

Analysts React to Surprise Rate Cut

Experts who spoke with Nairametrics expressed a mix of optimism and caution following the MPC’s decision, with many describing the scale of the reduction as unexpected.

Dr. Muda Yusuf, Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), said the move may reflect the CBN’s recognition of inconsistencies within its monetary policy framework.

• “Maybe the CBN too has realised that there are quite a number of disconnects in its policy architecture. Because if inflation is 15.4% and MPR was 26.5%, that’s a huge gap. That itself is showing that something is actually not adding up,” he said.

Yusuf also pointed to overnight lending rates of around 19% and Open Market Operations (OMO) rates of about 22%, arguing that these levels highlighted a disconnect between the MPR and other market rates.

• “Then you have overnight rates at about 19%, as the banks borrow money from themselves. Then you have the OMO rates at about 22%. So, there’s a major disconnect between the MPR and other key rates in the economy,” he said.

According to him, the CBN’s decision to describe the move as a “reset” rather than a conventional rate cut suggests that underlying issues within the policy architecture may have been addressed.

• “So, I think that is why the CBN decided; they didn’t call it a cut, they called it a reset. So, that means some fundamentals have been fixed in terms of their architecture and the framework for determining rates,” he said.

Yusuf welcomed the reduction in borrowing costs, particularly for small and medium-sized enterprises (SMEs) and retailers, but warned that lower rates could affect portfolio investment flows and foreign exchange liquidity.

Lower Rates Could Support Economic Growth

Jerry Igwilo, Chief Executive Officer of Nisela Capital, described the reduction as a significant adjustment and linked it to Nigeria’s declining inflation trend.

• “I think the inflation rate has consistently been dropping. So, that will allow them to give our people a little bit of relief. Now, that is actually the intention,” he said.

He noted that central banks typically make policy decisions within the context of inflation targets and future expectations reflected in the yield curve.

According to him, lower interest rates could help support the federal government’s ambition of building a one-trillion-dollar economy by easing financing constraints on businesses.

• “If you want to have a trillion-dollar economy, it also means that you have to do some certain things drastically to be able to support the economy… The only thing that central bank can do is to reduce interest rates. To say to businesses, we hear you. The cost of funding is very high. We hear you,” he said.

He also suggested that strong demand for recent government bond issuances may have given the CBN confidence that investors would continue to participate even at lower yields.

The Head of Financial Institutions Ratings at Augusto & Co, Olubunmi Ayokunle, also expressed surprise at the decision, noting that he was still evaluating its implications shortly after the announcement.

Why the MPC Opted for a Reset

Prior to the latest decision, Nigeria maintained one of the highest benchmark interest rates globally when adjusted for inflation.

Alongside the reduction in the MPR, the MPC recalibrated the Standing Facilities Corridor while retaining existing Cash Reserve Requirement (CRR) levels for Deposit Money Banks, Merchant Banks, and non-TSA public sector deposits.

• Governor Cardoso said on Tuesday that the committee was encouraged by three consecutive months of decline in headline inflation.
• MPC members noted that previous monetary tightening measures had contributed to moderating inflationary pressures.
• The committee also cited sustained exchange-rate stability and improved inflation expectations as positive developments.

According to the governor, these conditions provided support for the committee’s latest policy decision.

The move signals a notable shift in the CBN’s monetary policy stance after an extended period of aggressive tightening aimed at restoring price stability.

Inflation Continues Downward Trend

The rate cut comes as inflation continues to ease across the economy. According to data released by the National Bureau of Statistics (NBS), Nigeria’s headline inflation rate declined to 15.39% in August 2026.

• The figure represents a 0.04 percentage-point decline from July 2026.
• Inflation has fallen by 7.75 percentage points from 23.14% recorded in August 2025.
• The moderation was driven largely by slower increases in food and core inflation.
• Rural inflation, however, accelerated during the month.

The continued decline in inflation provided important context for the MPC’s decision, although analysts say the CBN will need to carefully manage potential risks to foreign exchange inflows as it balances growth objectives with macroeconomic stability.