CBN Cuts Interest Rate to 27% as OPS Welcomes Move but Warns of Limited Impact

The Monetary Policy Committee of the Central Bank of Nigeria has reduced the benchmark interest rate to 27.00 per cent, marking the first cut in 2025 after three consecutive pauses. The move signals a shift in policy towards supporting economic recovery, yet members of the Organised Private Sector say the cut remains marginal and insufficient to ease the credit squeeze on manufacturers and small businesses.

Announcing the decision after the committee’s 302nd meeting in Abuja, CBN Governor Olayemi Cardoso said all 12 members voted for a 50-basis point cut from 27.5 per cent. The MPC also adjusted the Standing Facilities corridor to +250/-250 basis points, raised the Cash Reserve Requirement for commercial banks to 45 per cent while retaining merchant banks at 16 per cent, and introduced a 75 per cent CRR on non-TSA public sector deposits. The Liquidity Ratio was left unchanged at 30 per cent.

Cardoso explained that the decision was based on sustained disinflation recorded in the past five months, projections of further declines in inflation through the year, and the need to support economic recovery. Nigeria’s headline inflation slowed to 20.12 per cent in August from 21.88 per cent in July, while food inflation eased to 21.87 per cent and core inflation to 20.33 per cent. On a month-to-month basis, inflation fell sharply to 0.74 per cent in August compared to 1.99 per cent in July.

“This reduction is the first under my leadership and the first in five years,” Cardoso said, recalling that the last cut was in September 2020 when the rate dropped from 12.5 per cent to 11.5 per cent. Across Africa, Ghana and Kenya have also lowered their rates, leaving Nigeria with one of the highest benchmarks on the continent.

The MPC also highlighted Nigeria’s Q2 GDP growth of 4.23 per cent, driven largely by a 20.46 per cent rebound in the oil sector. It commended improved security in oil-producing regions, rising foreign reserves now at $43.05bn, and a stronger current account surplus of $5.28bn in Q2 compared with $2.85bn in Q1.

Cardoso disclosed that 14 banks had already met the recapitalisation requirements, assuring that the sector remains resilient. Looking ahead, the MPC projected continued disinflation supported by exchange rate stability, declining petrol prices, and the harvest season.

Reactions from the private sector were mixed. The Director-General of the Manufacturers Association of Nigeria, Segun Ajayi-Kadir, described the cut as welcome but inadequate. He stressed that manufacturers need loans at no more than five per cent for borrowing to truly support production. Similarly, NECA DG Adewale Oyerinde said the effect of the rate cut could be undermined by a high CRR and liquidity restrictions.

Dr Femi Egbesola, President of the Association of Small Business Owners of Nigeria, called the cut a “good start” but “insignificant,” warning that SMEs remain locked out of affordable financing. The Centre for the Promotion of Private Enterprise echoed the need for complementary fiscal reforms, with its DG Dr Muda Yusuf stressing that infrastructure, security, and regulatory stability must support monetary easing.

The Nigeria Labour Congress also welcomed the cut but argued that borrowing costs remain prohibitively high. NLC Assistant Secretary-General Onyekachi Christopher said cheaper credit is vital for manufacturers to expand production and create jobs.

Economists agreed the reduction signals the beginning of a shift from tight monetary policy. Professor Sheriffdeen Tella said borrowing remains unattractive at current levels, while former Zenith Bank Chief Economist Marcel Okeke noted that further cuts could follow in November if inflation continues to fall. He pointed out that inflation dropped from nearly 35 per cent in December 2024 to about 20 per cent in August 2025.

Observers say the reduction is symbolic yet meaningful. While it sends a signal of intent, the consensus among stakeholders is that much deeper cuts and stronger fiscal reforms are required to unlock Nigeria’s productive potential and deliver real relief to businesses and households.