Experts Say CBN Rate Cut Could Unlock Cheaper Credit, Boost Investment

Analysts welcome the CBN’s surprise rate cut but warn that cheaper credit will depend on banks transmitting the reduction.

Managing Director/Chief Executive Officer, Financial Derivatives Company Limited, Bismarck Rewane, told THISDAY that the latest decision should be viewed against the cumulative movement in monetary policy and the corresponding moderation in inflation, rather than as an isolated rate cut.

Rewane said, “Let me put it this way, I think it’s time to look at the cumulative effect of all of this.”

He said MPC had recorded a combination of rate cuts, increases, and periods of holding the policy rate before arriving at the latest decision.

According to him, the cumulative 350 basis-point reduction must be considered alongside the decline in inflation, suggesting that the latest decision reflects a recalibration as the monetary environment changes.

Rewane also pointed to CBN’s focus on monetary transmission and high-powered money, saying the bank remains conscious of the risks that excessive liquidity could pose to price stability.

He stated, in an interview on CNBC, that the decision showed that CBN was prepared to deploy some of the buffers built up over the past period of monetary and foreign exchange adjustments.

“What he has done is he has used the buffers that were built,” Rewane said, referring to the financial and policy buffers available to the authorities.

His assessment suggests that the rate cut is not necessarily a retreat from monetary discipline, but a calculated decision based on the greater policy space created by improving fundamentals.

That space, however, does not eliminate the risks.

Rewane acknowledged the potential volatility around the foreign exchange market and the broader external environment, but stated that the available buffers provided room to absorb some of the pressure.

He added, “So there are some risks, but what he has done is he has used the buffers that were built. When I say buffers, financial buffers and policy buffers as well, to say, okay, let’s throw the dice, all right. And there’s enough. There’senough buffers, enough resolution, enough autonomy to actually build and go forward without actually distorting things.

“Worst-case scenario is that the currency is trading about N1320, while the Purchasing Power-Parity (PPP) value is about N1,100. So, assuming it moves 10 per cent of the range the other way, so it gives you N1,400 to N1,130 something. You are about N1,430, which is where the parallel market was two months ago or a month ago.”

Rewane added, “I don’t see that this could create massive volatility, bearing in mind that our neighbouring country, not neighbouring Angola, has just seen its inflation rate drop that sharply, seen interest rates cut, and so it’s not totally out of the woods.

“I mean, but clearly, what it has done is it has taken a position on the fact that, I am now ready to use my reserves and my savings to protect myself.

“His position was reinforced by the changing composition of Nigeria’s foreign exchange inflows, particularly diaspora remittances.”

However, Oye, while commending CBN for slashing MPR, described the decision as a decisive reset of monetary policy.

Banks Must Reciprocate CBN Gesture

In a statement, Oye said the reduction of the benchmark rate represented a substantial policy adjustment capable of opening the door to lower borrowing costs. He, however, cautioned that the move would only have meaningful impact if banks transmitted the reduction to the real economy.

According to him, the decision “deserves applause for its clarity and decisiveness”.

But Oye stressed that a lower policy rate alone could not guarantee cheaper credit, increased investment, or stronger productive activity.

He stated, “A lower policy rate opens a door; it does not guarantee that credit, investment, or productive enterprise will walk through it.”

He said the current macroeconomic environment provided some basis for CBN’s recalibration, pointing to the moderation in headline inflation, which stood at 15.39 per cent year-on-year in August, down from 15.43 per cent in July and 15.93 per cent in May.

Oye also stated that the official Nigerian Foreign Exchange Market (NFEM) rate strengthened from N1,364.8344 per dollar on August 3 to N1,332.9396 on August 31, describing relative foreign exchange calm as a more defensible description of the market than claims of complete stability.

However, he identified the transmission of the rate cut to businesses and households as the critical test of the latest policy decision.

He stated that CBN’s latest published aggregate measures for August put the prime lending rate at 17.86 per cent and maximum lending rate at 29.20 per cent, indicating that the cost of credit remains significant, despite the easing of inflation.

According to him, the MPR reduction should begin to influence the cost of capital, but should not be mistaken for an automatic reduction in every bank’s lending rate.

“The transmission question is the central demand,” he said, stressing that banks should not be quick to reprice deposits downward while taking longer to review lending rates.

Oye also urged CBN to monitor how quickly and transparently the policy adjustment fed through to loan pricing, particularly for viable businesses and productive investment.

He called for greater transparency from banks, suggesting that the apex bank should encourage and publicly monitor adjustments in lending rates following the MPR reduction.

He proposed a publicly accessible “Prime Lending Rate Adjustment Tracker” to enable borrowers, investors, and policymakers monitor how banks respond to changes in the monetary policy benchmark.

Oye further linked the success of the rate cut to the recently signed Memorandum of Understanding (MoU) between CBN and the Federal Ministry of Finance on fiscal-monetary policy coordination.

Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, and Cardoso signed the framework in Abuja on September 18.

Oye said the agreement, which provided for closer coordination on policy consistency, information sharing, economic forecasting, government financing, and cash management, could become an important support mechanism for the latest monetary policy reset.

He cautioned, however, that the agreement must not undermine the operational independence of the central bank.

“Coordination must never become fiscal dominance,” he said, quoting a warning attributed to Oyedele.

Oye said the essence of coordination should be to prevent fiscal and monetary policies from working at cross purposes while preserving CBN’s ability to take independent monetary policy decisions.

He also pointed to recent credit data as an important indicator to watch, stating that net credit to government declined from about N33.92 trillion in July to N32.70 trillion in August, while credit to the private sector increased from about N83.43 trillion to N84.55 trillion.

He said the figures did not by themselves establish that government borrowing was crowding out private-sector credit, but underscored the need for disciplined management of government financing and liquidity.

Oye urged the finance ministry to give practical effect to the new fiscal-monetary coordination framework by strengthening government financing and cash-management planning.

He called for a clear and regularly updated consolidated government financing calendar, aligned with liquidity forecasts and debt-issuance plans.

He also urged CBN to remain data-driven in considering subsequent policy decisions, warning against treating the latest rate reduction as the beginning of an automatic easing cycle.

New Era for Borrowers

For borrowers, Oye said the new policy environment presented an opportunity to demand greater clarity from their banks on the benchmarks used in pricing facilities, the impact of the new MPR on existing and new loans, and the timing of subsequent reviews.

He said the ultimate measure of the policy reset would not be the announcement itself but whether it resulted in a more predictable credit environment for enterprises and households.

Oye stated, “The aim is not a celebratory press release or a lower number on a policy screen. The aim is an economy in which enterprises can plan, borrowers can understand their costs, public financing is managed with discipline, and monetary independence remains strong enough to say no when it must.”

Uwaleke, while reacting to the MPR cut, stressed that the apex bank’s decision was justified by moderating inflation, exchange rate stability, improvement in FX market liquidity, and accretion to external reserves.

He said, “It is a welcome development against the backdrop of the recently signed MoU between the Minister of Finance and the CBN governor on fiscal and monetary policies collaboration.”

Uwaleke added, “I expect commercial banks to respond accordingly.”

The CBN’s rate cut apparently caught the market off-guard, with analysts describing the scale of the reduction as unexpectedly bold.

CPPE: Rate Reduction Can Lower Cost of Capital

The CPPE chief executive, Dr. Muda Yusuf, welcomed the MPR reduction saying, “The decision is particularly positive for the real sector, where high financing costs have become a major constraint on investment, production, working capital, and job creation.”

Yusuf said the magnitude of the adjustment was largely unexpected and represented a significant shift from the prolonged restrictive monetary policy regime.

He said, “It signals an important rebalancing of monetary policy towards supporting growth, investment, and economic recovery, while preserving price and financial-system stability.

“The CPPE considers the adjustment timely, given the improving inflation trajectory and the growing costs of an excessively restrictive monetary environment.

“The reduction of the MPR to 23 per cent should, therefore, be viewed not merely as monetary easing, but as an important realignment of the policy rate with prevailing macroeconomic and financial-market conditions.”

According to him, commercial lending rates for many businesses have remained at levels that are difficult to reconcile with productive investment, particularly in manufacturing, agriculture, construction, logistics, and other sectors with relatively long investment cycles and tight margins.

He stated, “The policy adjustment, therefore, offers an opportunity to reduce the cost of capital, improve business cash flows, stimulate investment, and strengthen the productive capacity of the economy.”

Yusuf, however, stated that the ultimate economic value of the decision would depend on transmission and expect banks to reflect the new monetary policy environment in the pricing of credit.

He stated, “Lending rates on both new and existing facilities should progressively adjust downwards. Without meaningful transmission to borrowers, the impact of the policy adjustment on investment and economic growth would be limited.”

Lower Rates May Ease Government Borrowing Costs

According to Yusuf, the decision also has potentially significant implications for public finance because the high interest-rate environment has contributed materially to the escalation of the federal government’s domestic debt-service burden.

He said, “Government securities have had to compete with exceptionally high market yields, increasing the cost of borrowing and placing additional pressure on already constrained fiscal space.

“A sustained moderation in interest rates should reduce the marginal cost of government borrowing and, over time, moderate domestic debt-service costs.

“This could create additional fiscal space for infrastructure, security, education, healthcare and other development priorities.”

The fiscal dividend would, however, depend on the extent to which the MPR adjustment translates into lower yields across the government securities market.

CPPE also said the divergence between Nigeria’s monetary policy direction and recent tightening by some major central banks around the world could affect interest-rate differentials and the relative attractiveness of naira-denominated financial assets. This creates a potential risk of portfolio-flow reversals and renewed pressure on the foreign-exchange market.

CPPE stressed that the current monetary recalibration should be complemented by stronger fiscal and structural interventions aimed at reducing production costs, improving productivity, strengthening food and energy security, and expanding domestic productive capacity.

“This is critical to ensuring that monetary easing translates into investment and additional output rather than renewed inflationary pressure,” Yusuf said.

NECA Hails Rate Decision

Nigeria Employers’ Consultative Association (NECA) stated that a lower policy rate did not automatically translate into cheaper credit for businesses.

NECA Director-General, Adewale-Smatt Oyerinde, stated that the retention of Cash Reserve Requirement (CRR) at 45 per cent for deposit money banks indicated that monetary conditions remained relatively tight.

Oyerinde said, “The reduction could, over time, support lower lending rates and improve access to working capital and investment financing, particularly for manufacturers and SMEs.

“However, the speed and extent of this transmission will depend on how banks adjust their lending rates.

“With August 2026 headline inflation at 15.39 per cent, the new 23 per cent MPR remains above the prevailing inflation rate. The reduction, therefore, represents a measured easing rather than a shift to broadly accommodative monetary policy.”

He added, “The adjustment could support improved liquidity management and monetary policy transmission.

“The rate cut provides an opportunity for improved access to credit, but the broader cost of doing business remains a concern.

“Manufacturers and other businesses continue to contend with high input, energy, logistics and foreign exchange-related costs. NECA will, therefore, continue to monitor the transmission of the policy rate reduction to actual lending rates and advocate for a sustained and predictable path towards lower financing costs.”

Oyerinde also said the retention of relatively high CRR levels indicated that CBN remained attentive to liquidity and inflation considerations.

Comercio Partners: Remittances Can Cushion Portfolio Outflows

Managing Partner, Comercio Partners, Nnamdi Nwizi, said the emphasis placed on diaspora remittances by CBN was particularly significant in assessing the implications of the rate cut for the foreign exchange market.

Nwizi explained that while a sharp reduction in the policy rate could ordinarily encourage portfolio investors to reassess their exposure to Nigerian assets, stronger remittance inflows could provide a buffer against any resulting capital outflows.

He said, “If they see that, look, we have that diaspora remittance coming in, which can create a buffer for the funds that will go out if it will go out, then that helps a bit.”

He said the market was already reacting to MPC’s decision, stating that there are bids for bonds but limited offers as investors reassess asset prices following the announcement.

Nwizi also drew attention to the reference to an MOU during MPC’s communication, saying the details could provide further insight into the confidence behind the decision, particularly given the proximity of the election cycle.

The significance of diaspora remittances, he suggested, was that they represented a source of foreign exchange different from short-term “hot money” flows, which could reverse rapidly when yield differentials change.

The distinction could become increasingly important as Nigeria moves into a lower interest-rate environment.

The latest reduction also comes within a monetary policy framework that has continued to preserve a positive real return on naira assets.

CFG Advisory: CBN Maintains Real-Rate Buffer

Managing Partner, CFG Advisory, Tilewa Adebajo, stated that MPC had remained consistent in maintaining a 10 per cent real rate of return premium between core inflation and MPR.

This provides an important context for the size of the cut, indicating that CBN is not simply easing policy in response to pressure for lower rates, but adjusting the nominal policy rate as inflation moderates, while retaining a substantial positive real-rate buffer.

Agusto & Co: Scale of Cut Surprised Market

Head, Financial Institutions Ratings at Agusto & Co., Ayokunle Olubunmi, said the market had expected, at best, a maintenance of the status quo.

Olubunmi said the scale of the reduction was particularly surprising.

“Everybody was actually surprised by the way it got,” Olubunmi said, adding that even those who had anticipated a reduction did not expect it to be “that massive”.

The decision was even more striking, he stated, given the recent rate increase by the US Federal Reserve.

Olubunmi said the reduction could have a positive impact on the domestic economy by lowering borrowing costs for businesses and individuals, potentially stimulating credit and economic activity.

The concern, however, is the impact on portfolio investors.

With Nigerian yields declining while rates in the United States moved higher, the premium available to investors pursuing carry trades could narrow considerably.

“As the Fed is also increasing its rate, you can see that that gap will actually be shrinking,” Olubunmi said.

That could result in some portfolio investors reducing their exposure to Nigerian assets, particularly if the risk-adjusted return no longer justified the cost of capital.

But Olubunmi cautioned against viewing this entirely negatively, stating that Nigeria’s long-term foreign exchange strategy should not depend excessively on short-term portfolio flows.

“The truth of the matter is that, really, if you want a stable FX market, you might actually want to, as much as possible, minimise their influence,” he said.

He added that the latest decision would ultimately test whether Nigeria now had sufficient foreign exchange income and buffers to withstand some reduction in portfolio inflows.

LCCI Welcomes Interest Rate Cut, Urges Measures to Translate Policy to Affordable Credit

Lagos Chamber of Commerce and Industry (LCCI) said the decision of MPC’s 307th meeting represented a significant easing of monetary conditions.

LCCI said it was a welcome development for businesses, particularly micro, small, and medium-sized enterprises (MSMEs) that had been severely constrained by high cost of credit.

LCCI said the rate reduction was a positive signal for businesses seeking to finance working capital, investment, and expansion.

In a statement issued on Tuesday by Director-General of LCCI, Dr. Chinyere Almona, the organisation cautioned that the reduction in MPR should not be interpreted as an automatic reduction in the cost or availability of credit to businesses.

Almona emphasised that the transmission from the policy rate to lending rates and actual credit allocation still remained critical.

She stated, “Consequently, unless the underlying business risks confronting enterprises are simultaneously addressed, the reduction in the MPR may have a limited impact on actual credit access for many SMEs. Credit transmission must be the next priority.”

LCCI called for deliberate measures to strengthen the transmission of monetary policy easing to the real sector.

Almona stated, “We encourage the CBN and financial institutions to ensure that the benefits of the lower policy rate are progressively reflected in more affordable and accessible credit for productive businesses, particularly SMEs.”

She said CBN should closely monitor the response of commercial banks and other financial institutions to the easing of monetary conditions, particularly the movement of lending rates and credit allocation to productive sectors.

She also said government and financial-sector institutions should strengthen credit guarantees, partial-risk guarantees, and other de-risking instruments that could encourage lending to viable SMEs without compromising prudent banking standards.

Almona pointed out that monetary easing must be accompanied by measures that reduced the structural risks confronting businesses.

The statement said, “The high cost and unreliable availability of energy, excessive logistics costs, infrastructure deficiencies, multiple regulatory charges, and other barriers to competitiveness continue to weaken the capacity of businesses to generate the cash flows required to service loans.

“The impact of monetary easing will be more sustainable if increased liquidity is channelled towards productive activities – manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare, construction, and other sectors capable of expanding output and employment.

“The chamber, therefore, views the current decision as an opportunity to strengthen the transmission of monetary policy to the productive economy.”

LCCI said, “Monetary easing must be matched by measures that reduce lending risk and improve businesses’ capacity to borrow and repay.

“For the SME sector in particular, the objective should be to create an environment where lower policy rates translate into lower lending rates, increased credit supply, and greater access to appropriately structured finance.

“The current rate reduction provides an important window of opportunity.

“The priority now should be to ensure that this window translates into credit for businesses, investment in productive capacity, jobs, and sustainable economic growth.”