CBN: Resetting interest rates for economic prosperity

The recent interest rates resetting by the Central Bank of Nigeria (CBN) at the 307th meeting of the Monetary Policy Committee (MPC), held on September 21 and 22, 2026 has been welcomed by experts and industry players who described it as the right step in the right direction.

It would be recalled that the CBN had reset its Monetary Policy Rate (MPR) to 23 per cent from 26.5 per cent, alongside a recalibration of the interest rate corridor, in a move the apex bank described as an operational realignment rather than a shift in monetary policy stance.

Announcing the outcome of the two-day deliberation, CBN Governor, Olayemi Cardoso, said the Committee also recalibrated the Standing Facilities Corridor to +50/-300 basis points around the MPR, while retaining the Cash Reserve Requirement (CRR) at 45 per cent for Deposit Money Banks, 16 per cent for Merchant Banks, and 75 per cent for non-TSA public sector deposits.

Why the reset?

The Committee had emphasised that the reset of the benchmark rate is not in any way a change in its underlying tightening stance.

According to the MPC, the recalibration is designed to strengthen monetary policy transmission and restore the primacy of the MPR as the key signal of the Bank’s policy direction.

Members explained that a widening gap had emerged between the MPR and prevailing market rates, a divergence that had begun to weaken the effectiveness of monetary policy transmission across the economy.

The Bank’s ongoing repair of its policy implementation framework, including the introduction of the Nigerian Overnight Funding Rate (NOFR) as a transaction-based operational benchmark, has improved transparency in money market operations, the Committee noted, and made the timing of the reset appropriate.

The MPC stressed that this operational reset also supports Nigeria’s gradual transition toward an inflation-targeting framework, and that the current macroeconomic environment gave it enough confidence to proceed without derailing the disinflation process already underway.

It noted that inflation targeting has been central to the Committees’ decision as Headline inflation, on a year-on-year basis, slowed to 15.39 per cent in August 2026, down slightly from 15.43 per cent in July. Food inflation eased more sharply, dropping to 19.57 per cent in August from 20.31 per cent the previous month, a trend attributed to falling prices of palm oil, vegetables and meat.

Core inflation also moderated significantly, declining to 13.29 per cent in August from 14.97 per cent in July, driven by lower transport and healthcare costs. On a month-on-month basis, headline inflation slowed to 0.71 per cent in August from 1.57 per cent, largely on the back of easing food prices. The MPC linked the disinflation trend to the lagged effects of earlier monetary tightening, exchange rate stability, and improving inflation expectations.

Economy on path of recovery

Painting a long term plan, the MPC noted that real Gross Domestic Product (GDP) grew by 4.43 per cent in the second quarter of 2026, up from 3.89 per cent in the first quarter, with both the oil and non-oil sectors contributing to the improvement.

The non-oil sector expanded by 4.31 per cent, compared with 3.94 per cent in the preceding quarter, driven by growth in information and communications technology, crop production, real estate, livestock, financial services and trade.

The oil sector recorded an even sharper acceleration, growing by 7.31 per cent compared with 2.57 per cent in the first quarter, supported by increased production and fresh investment.

Business sentiment also strengthened, with the Composite Purchasing Managers’ Index (PMI) rising to 52.7 index points in August from 51.1 in July, signalling continued economic expansion.

On the external front, the Committee highlighted a notable improvement in Nigeria’s balance of payments position, which recorded a surplus of $3.51 billion in the second quarter of 2026, up from $2.38 billion in the first quarter. The current account surplus rose even more sharply, increasing by 67.92 per cent to $7.54 billion in Q2 2026 from $4.49 billion in Q1.

Gross external reserves, the Committee noted, stood at $55.25 billion as of September 18, 2026 the highest level in 18 years sufficient to cover approximately 11.3 months of imports of goods and services.

CNG initiative, fiscal-monetary pact seen as boosts to disinflation

The MPC also welcomed two developments it believes will reinforce the disinflation trend going forward. The first is the Presidential Initiative on the National Affordable CNG Transit Programme, which the Committee expects to reduce transportation costs and further ease inflationary pressures.

The second is a Memorandum of Understanding recently signed between the Federal Ministry of Finance and the Central Bank of Nigeria on fiscal-monetary coordination.

The Committee described this as a renewed commitment to policy harmonisation that would provide a structured framework for aligning fiscal and monetary actions in pursuit of low and stable inflation.

Members also cited the successful bank recapitalisation programme as a factor strengthening the banking industry, noting that it had enhanced banks’ capital buffers, resilience, and capacity to finance long-term projects in critical sectors of the economy.

Taken together, the Committee said, these developments created sufficient headroom to justify the timing of the rate corridor reset.

Looking ahead

In their projections, the CBN expressed confidence that Nigeria’s domestic output growth will remain resilient through the rest of 2026, supported by improved crude oil production, expansion in agriculture, and continued strength in business activity as reflected in the PMI.

They also project inflation to moderate further in the short-to-medium term, the Committee said, underpinned by stability in the foreign exchange market, the lagging effects of earlier tightening, and expectations of improved food supply as the harvest season progresses.

It however expreased cautious optimism noting that the prolonged geopolitical tensions in the Middle East and election-related spending could pose upside risks to price stability going forward.

More perspective

Meanwhile CBN Governor, Mr. Olayemi Cardoso stated that the committee also agreed to recalibrate the standing facility corridor to +50 and -300 basis points around the MPR, while retaining the Cash Reserve Requirement, CRR, at 45 per cent for deposit money banks, 16 per cent for merchant banks, and 75 per cent for non-TSA public sector deposits, adding that the operational reset will enhance the effectiveness of monetary policy and support the transition to an inflation targeting framework, noting that the decision will not contradict its ongoing efforts to tackle inflation in the country.

The CBN governor said the adjustment would strengthen policy transmission and restore the MPR as the principal signal of monetary policy.

The apex bank governor also said that the recalibration of the policy framework should not be interpreted as a change in the underlying monetary policy stance.

The governor said foreign exchange pressures had receded considerably, while investor confidence and Nigeria’s external position had strengthened.

Cardoso attributed part of the stronger external buffers to increased diaspora remittances.

He said monthly remittances had risen from about $200m when the CBN intensified its reforms to almost $1bn by July, putting the apex bank within reach of its $1bn monthly target.

The reforms, he said, included expanding access to Bank Verification Numbers for Nigerians abroad, strengthening oversight of International Money Transfer Operators and requiring dedicated settlement accounts.

Comments

Join the conversation: Sign in

No comments yet. Be the first to share your thoughts.