In a significant monetary policy shift, Nigeria’s Central Bank has reduced its main lending rate to 27%, its first cut in five years, citing sustained easing inflation and positive economic growth. The monetary policy rate (MPR) was lowered by 50 basis points from 27.5% at the 302nd Monetary Policy Committee (MPC) meeting held on September 22 and 23, 2025. This marks a turnaround from a tightening cycle that has persisted since early 2024 in response to inflationary pressures.

Falling Inflation Supports the Cut
Nigeria’s annual inflation rate eased to 20.12% in August 2025, the fifth consecutive monthly decline. This compares with 21.88% in July and a high of 32.15% in August 2024, signaling success in the Central Bank’s disinflation efforts. The Consumer Price Index also showed slower price increases month-on-month, bringing some relief to Nigerian consumers struggling with high living costs.

Economic Growth Spurs Optimism
The rate cut comes alongside robust economic performance. Nigeria’s real gross domestic product (GDP) expanded by 4.23% year-on-year in the second quarter of 2025, the fastest growth pace in about four years. Growth was supported by strong output in the oil sector, which rose 20.42%, as well as positive contributions from industry, agriculture, and services.

Central Bank’s Rationale and Policy Adjustments
CBN Governor Dr. Olayemi Cardoso explained that the decision to lower the MPR was based on sustained disinflation over five months and expectations for continued inflation decline through year-end. Alongside the rate cut, the MPC adjusted the interest rate corridor and reserve requirements to better manage liquidity in the banking system. The cash reserve ratio for commercial banks was retained at 45%, while a new 75% reserve requirement was introduced on non-Treasury Single Account (TSA) public sector deposits—a measure aimed at controlling excess liquidity from government spending.

“The committee’s decision to lower the monetary policy rate was predicated on the sustained disinflation recorded in the past five months, projections of declining inflation for the rest of 2025, and the need to support economic recovery efforts,” Governor Cardoso stated during the post-meeting briefing.

Real-Life Impact and Expert Insight
The rate cut is widely viewed as a cautious step toward stimulating borrowing and investment while maintaining price stability. Traders noted a market repricing, with yields and lending rates beginning to mirror the new monetary environment. However, some business leaders called for further credit relief to ensure small and medium enterprises benefit from improved financing conditions.

Standard Chartered Bank’s Head of Africa Strategy commented on the delicate balance facing policymakers: “The market seems to be trying to gauge the speed at which monetary conditions will be further eased while considering the potential risks associated with open market operations issuance. The consensus, however, is that the pace of easing will be gradual”.

Context Within Africa
Nigeria’s cut follows similar monetary easing in other major African economies, including Ghana, Egypt, and South Africa, where central banks have lowered rates in response to moderating inflation rates and efforts to boost economic growth.

Summary and Next Steps
Nigeria’s Central Bank’s rate reduction to 27% signals an optimistic outlook on inflation control and a commitment to supporting economic recovery. Continued vigilance over inflation trends and liquidity management will be crucial. Analysts and businesses alike will watch closely for further policy shifts that could accelerate credit availability and investment.

For Nigerians, this development holds potential for lower borrowing costs and improved economic activity if sustained. Policymakers face the challenge of balancing growth support without reigniting inflation, a task that will shape Nigeria’s economic trajectory in the coming months.