CBN Cuts MPR by 3.5% to 23%, Cardoso Defends Reforms as Reserves Hit $55.25b

The Monetary Policy Committee (MPC) has cut the benchmark interest rate by 3.5 percentage points to 23 per cent, a move that offers relief to businesses and borrowers but raises fresh foreign exchange and inflation risks. The decision came after a two-day meeting in Abuja, with CBN Governor Yemi Cardoso announcing a recalibration of the standing facilities corridor to +50/-300 basis points around the MPR.

That puts the transaction corridor at between 20 per cent and 22.5 per cent, down from nearly 30 per cent at the height of the recent tightening cycle.

Cheaper Credit, Higher Risk

The unexpectedly steep cut lands at a time of global policy divergence. This month, both the United States Federal Reserve and the European Central Bank raised their anchor rates by 25 basis points amid renewed inflationary pressures from the global energy crisis. For international investors, the signal is that the price of money is falling in Nigeria while it is stable or rising elsewhere. That narrows Nigeria's interest-rate advantage and could invite capital outflows, weaker inflows, or both, testing the naira's recent stability.

The naira has been reasonably stable for about two years. A pro-market reform executed by the interim management led by Folashodun Shonubi caused a sharp depreciation, but improved 2025/2026 performance moderated the post-liberalisation loss to about 65 per cent. Analysts see some comfort in external reserves at an 18-year high of $55.25 billion and crude prices still trending upward. Cheaper credit could also fuel asset bubbles and higher inflation, the bank warned.

Reserve Requirements Held

The CBN retained the cash reserve requirement 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 mix of a lower policy rate with unchanged reserve requirements suggests the bank wants to cut the cost of credit without loosening its grip on system liquidity.

Cardoso: An Operational Reset

Cardoso described the move as an operational reset rather than a shift towards monetary easing. He said the aim was to strengthen monetary-policy transmission and restore the MPR as the principal signal of monetary policy, after divergence between the policy rate and market rates weakened transmission.

That nuance matters for manufacturers, who see borrowing costs as only one part of a wider cost crisis involving energy, logistics, imported raw materials, FX and multiple taxation. CBN research has established a negative relationship between lending rates and manufacturing output. If the cut is transmitted through the banking system, lower financing costs could help manufacturers fund working capital, buy machinery and expand capacity. But the MPR is not the rate at which most manufacturers borrow. Final credit costs also reflect banks' funding costs, risk assessments, operating expenses, capital requirements, collateral demands and expectations on inflation and the exchange rate.

Cardoso defended his record, pointing to restoration of the CBN's core mandate, removal of multiple exchange-rate distortions, rebuilding of reserves, banking-sector recapitalisation and higher diaspora remittances. He recalled an economy where confidence in the currency and the central bank had collapsed, pushing savings into foreign currency. He put Ways and Means exposure at about N23.7 trillion, alongside more than N10 trillion in interventions, saying the liquidity built through those channels fed inflationary pressures. The cut comes exactly three years after Cardoso assumed office.

What It Means

For Nigerian businesses, the key question is whether the lower benchmark rate becomes cheaper commercial lending. If banks pass it through, working capital and expansion costs ease. If they do not, the relief stays on paper while the naira carries the FX risk of a narrowing rate advantage.