CBN’s 350bp rate cut may boost growth, pressure FX

ABUJA, Nigeria — The Central Bank of Nigeria (CBN) cut its benchmark interest rate from 26.5% to 23% on September 22, 2026, reducing the Monetary Policy Rate by 350 basis points after its 307th Monetary Policy Committee meeting.

Kanyi Daily reports that CBN Governor Olayemi Cardoso announced the reduction, which was the first major cut in nearly two decades and came despite expectations from many market participants that the rate would remain unchanged.

Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, said the reduction could address inconsistencies between the policy rate and other market rates. “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 said overnight lending rates of about 19% and Open Market Operations rates of about 22% also showed differences between the MPR and other market rates. “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.

Chief Executive Officer of Nisela Capital, Jerry Igwilo, linked the decision to Nigeria’s declining inflation rate and said lower borrowing costs could provide relief to businesses. “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.

Igwilo said lower interest rates could also support the Federal Government’s US$1 trillion economy target by reducing financing constraints for 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.

The August 2026 inflation rate fell to 15.39%, down 0.04 percentage points from July and 7.75 percentage points from 23.14% recorded in August 2025, according to the National Bureau of Statistics (NBS). The MPC said three consecutive months of declining headline inflation, previous monetary tightening and sustained exchange-rate stability supported its decision.

Analysts also cautioned that lower interest rates could affect foreign portfolio investment and foreign exchange liquidity as the CBN balances economic growth with price and currency stability. Olubunmi Ayokunle, Head of Financial Institutions Ratings at Augusto & Co, said he was surprised by the scale of the reduction and was still assessing its implications after the announcement.

The MPC also recalibrated the Standing Facilities Corridor while retaining existing Cash Reserve Requirement levels for Deposit Money Banks, Merchant Banks and non-Treasury Single Account public sector deposits.