Nigeria’s central bank has opened a window for businesses to expand and invest, cutting interest rates for the first time since 2020 as inflation shows signs of easing and the economy strengthens.
The 50 basis points reduction in the benchmark rate to 27 percent marks a modest but symbolic shift from aggressive monetary tightening, signaling the need to balance vigilance on inflation with support for economic recovery.
Governor Olayemi Cardoso said the Monetary Policy Committee’s (MPC) decision was made after reviewing macroeconomic developments. “The committee’s decision to lower the monetary policy rate was predicated on the sustained disinflation recorded in the CBN’s past five months, projections of declining inflation for the rest of 2025 and the need to support economic recovery efforts,” Cardoso said in Abuja after the September meeting.
He explained that the new measures were aimed at strengthening monetary control, improving liquidity management, and reinforcing the Treasury Single Account (TSA) regime.
Four-year GDP high boosts optimism
The shift comes as the economy posts its fastest growth in four years. Nigeria’s Gross Domestic Product (GDP) expanded 4.23 percent in the second quarter of 2025, compared with 3.13 percent in the first quarter, according to the National Bureau of Statistics (NBS).
The NBS attributed the performance to stability in the oil sector and expansions across agriculture, industries, and services. “The second quarter Gross Domestic Product (GDP) report solidly puts growth within the quarter at 4.23 per cent, representing a 4-year high of 4.23 percent in the second quarter of the year,” the report stated.
Oil was the standout driver, recording 20.46 percent growth in the second quarter versus 1.87 percent in the first. Crude production averaged 1.68 million barrels per day (mbpd), 19.1 percent higher than the 1.41 mbpd in the same quarter of 2024, and above the 1.62 mbpd in the first quarter.
The sector’s GDP contribution rose to 4.05 percent from 3.97 percent.
Non-oil sectors also showed resilience. Overall, they grew 3.64 percent, up from 3.19 percent in the first quarter. Agriculture GDP climbed 2.82 percent, industries doubled to 7.45 percent, while services slowed slightly to 3.94 percent. Their combined contributions were 95.95 percent of total GDP, with services accounting for 56.53 percent, agriculture 26.17 percent, and industries 17.31 percent.
Experts said the figures underline reform gains but urged further policy actions. “This is a steady progress in the right direction, and we need to stay the course, maintain momentum, and drive for broad-based growth across all sectors of the economy,” said Niyi Yusuf, chairman of the Nigeria Economic Summit Group (NESG). “We need more pro-growth regulations and regulators, a predictable justice system, more private sector investments in critical sectors and security of lives and assets to fully unlock the potential of the economy.”
Read also: Why the CBN might play safe with rate cuts-Citibank
Businesses weigh rate cut impact
Analysts said the MPC’s move offers an opening for businesses, even if the immediate relief on borrowing costs will be limited.
Bukola Bankole, Partner & Corporate Finance Expert at TNP, said: “By lowering the benchmark rate by 50bps to 27 per cent, the MPC made a modest but symbolic move as it marks the first break from months of aggressive tightening. For businesses already borrowing at rates above 30 per cent however, this adjustment will not ease financing costs immediately, but it signals recognition that growth cannot be perpetually stifled in the name of inflation control.”
Bankole added that the cut reflects a balancing act between inflation vigilance and credit expansion. “I will say this MPC decision reflects an effort to balance vigilance on inflation with the need to create space for credit expansion and investment. The real challenge however remains consistency, as without predictable policy, stronger fiscal alignment, and structural reforms that address the root causes of inflation, this cut will remain symbolic as with a lot of other actions previously taken.”
She pointed out that Nigeria’s inflation is largely cost-push. “As we all know, inflation in Nigeria is not demand-driven; it is cost-push, reflecting exchange rate volatility, the knock-on effects of subsidy removal, high energy costs, and food supply disruptions. So certainly, against this backdrop, further hikes would have been the wrong medicine,” she said.
“If those elements are however in place, then this small cut could truly mark the beginning of a more sustainable policy mix that supports growth without abandoning the fight for price stability,” Bankole added.
Festive season to lift activity
Bismarck Rewane, managing director of Financial Derivatives Company Limited, projected that the economy would gather more steam toward year-end. He cited increased foreign currency inflows, stable commodity prices, and festive spending as drivers.
“December is shaping up as an upbeat period, boosted by diaspora remittances, ‘Detty December’, and increased spending on concerts, films, and festivals,” Rewane said.
He forecast the naira to stay around N1,500–N1,550/$, with inflation easing to 20 percent. He also predicted another MPC rate cut in November to sustain optimism into the festive season.
Policy communication push
The CBN has also intensified efforts to explain its policy stance and build credibility. At its Monetary Policy Forum 2025 themed “Managing the Disinflation Process”, Cardoso said the bank’s priorities include maintaining price stability, moving toward an inflation-targeting framework, and restoring purchasing power.
“In addressing our economic challenges, collaboration is key: Managing disinflation amidst persistent shocks requires not only robust policies but also coordination between fiscal and monetary authorities to anchor expectations and maintain investor confidence,” he said.
Cardoso also highlighted new minimum capital requirements for banks effective March 2026 to strengthen resilience and position the industry for a $1 trillion economy. “As we shift from unorthodox to orthodox monetary policy, the CBN remains committed to restoring confidence, strengthening policy credibility, and staying focused on its core mandate of price stability,” he added.
Global outlook
The World Bank has offered a positive medium-term forecast for Nigeria, projecting growth of 3.6 percent in 2025, 3.7 percent in 2026, and 3.8 percent in 2027. This contrasts with weaker global prospects, with the bank lowering its 2025 global growth forecast to 2.3 percent, the slowest pace outside a recession since 2008.
“Growth in developing economies has ratcheted down for three decades—from 6 percent annually in the 2000s to 5 percent in the 2010s—to less than 4 percent in the 2020s,” said Indermit Gill, the World Bank Group’s Chief Economist.
Ayhan Kose, the Bank’s Deputy Chief Economist, urged reforms in emerging markets. “The smartest way to respond is to redouble efforts on integration with new partners, advance pro-growth reforms, and shore up fiscal resilience to weather the storm,” he said.