Nigeria’s economy is expected to gain a fresh boost in growth and job creation following last week’s cautious interest rate cut by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN), as analysts say the move will ease credit conditions, support private sector expansion, and strengthen investment flows.
One of the expected outcomes of the cautious interest rate easing by the MPC is economic growth stimulation and job creation, particularly among Nigeria’s large and youthful population, according to economists.
At its meeting held on September 22–23, 2025, the MPC of the Central Bank cautiously reduced its benchmark interest rate, the Monetary Policy Rate (MPR), by 50 basis points to 27 percent from 27.50 percent. The move was aimed at boosting growth while sustaining the interest of foreign portfolio investors in the country.
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Announcing the decision at the end of the two-day meeting in Abuja, Olayemi Cardoso, the CBN governor explained that the committee’s choice to lower the MPR was influenced by five consecutive months of disinflation, projections of further moderation in inflation through the rest of 2025, and the need to sustain recovery momentum in the economy.
The committee, attended by 12 members, also delivered a set of complementary measures that balanced monetary easing with targeted liquidity controls. To support credit to the private sector, it reduced the Cash Reserve Requirement (CRR) for commercial banks to 45 percent from 50 percent, while retaining the CRR for merchant banks at 16 percent. At the same time, however, it introduced a 75 percent CRR on non-Treasury Single Account (TSA) public sector deposits to absorb excess liquidity from fiscal injections.
Cardoso noted that the MPC also adjusted the Standing Facilities corridor to improve efficiency in the interbank market and strengthen monetary policy transmission. He stressed that the new CRR measure on non-TSA public sector deposits was intended to enhance liquidity management and safeguard financial system stability.
Commenting on the outcome, Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), described the easing as timely. He observed that the Nigerian economy has recorded consistent disinflation over five months, showing that earlier tightening measures had successfully curbed inflationary pressures.
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With inflation moderating, Yusuf argued that the MPC’s pivot toward growth is logical, as high interest rates in recent quarters had constrained private sector credit, driven up borrowing costs, and slowed business expansion. The reduction in MPR and CRR, he said, was deliberately designed to improve liquidity conditions, reduce financing costs, and unlock capital for investment in productive sectors.
The MPC itself expressed satisfaction with prevailing macroeconomic stability, citing sustained disinflation, improved output growth, stable exchange rates, and robust external reserves. It highlighted the sharp disinflation in August 2025 as the strongest in five months, underpinned by earlier monetary tightening, exchange rate stability, increased capital inflows, and a surplus current account balance. The moderation in petrol prices and higher crude oil production also contributed to the trend. The committee acknowledged that this macroeconomic stability created room for monetary policy to support recovery. However, it also noted risks posed by excess liquidity in the banking system, stemming from improved fiscal revenues and subsequent releases. To mitigate these risks, the committee widened the standing facilities corridor to boost interbank market efficiency. It further emphasised the continued stability of the foreign exchange market, describing it as critical to sustaining rapid disinflation, and urged the CBN to intensify policies that would attract more capital inflows and deepen FX liquidity.
On the financial system, the committee reaffirmed the resilience of the banking sector, with most indicators within prudential benchmarks. It also welcomed progress in the ongoing recapitalisation exercise, noting that 14 banks have fully met the new capital requirement. The termination of forbearance measures and waivers on single obligors was described as a positive step toward transparency, better risk management, and long-term financial stability. The committee reassured the public that the impact of the removal of forbearance is temporary and poses no threat to overall banking system stability.
Economists and analysts have since weighed in on the implications of the easing. Yusuf pointed out that lower MPR and CRR will expand banks’ lending capacity, reduce borrowing costs, and make financing more accessible for businesses, especially small and medium enterprises. This should encourage new investments, support business expansion, and stimulate output growth and job creation. He also noted that banks would be better positioned to fulfill their intermediation role by channeling savings into productive sectors. At the same time, the higher CRR on non-TSA public sector deposits provides a safeguard against fiscal-driven liquidity injections destabilizing the system.
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While welcoming the monetary easing, Yusuf also stressed that fiscal policy must complement monetary measures. He argued that sustained fiscal consolidation is needed to maintain investor confidence and macroeconomic stability. He also called for greater investment in infrastructure to lower production and logistics costs, enhance competitiveness, and boost productivity, while strengthening regulatory and institutional frameworks to improve the business environment. He emphasised that insecurity remains one of the most significant constraints to private investment and rural productivity, requiring urgent government action.
Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, described the rate cut as the first by the CBN in five years. She explained that the MPR reduction was accompanied by an adjustment to the policy corridor around the benchmark rate, narrowing it to plus or minus 250 basis points from the previous +500/-100 basis points. This change, she said, lowered the CBN’s Standing Lending Facility to 29.5 percent from 32.5 percent, and the Standing Deposit Facility to 24.5 percent from 26.5 percent. She observed that while the CRR reduction to 45 percent will ease liquidity, the increase to 75 percent on non-TSA deposits is more of a policy signal than a practical tightening measure, given that excess liquidity largely arises from maturing Open Market Operations (OMOs) rather than public sector deposits. She stressed that the evolution of OMO policy will be a more significant determinant of monetary stance in the months ahead.
Bismarck Rewane, managing director and CEO of Financial Derivatives Company (FDC), described the meeting as positive, characterising the decisions as bold and aggressive. He noted that the introduction of the new CRR on non-TSA public sector deposits was clearly targeted at sterilising liquidity from Federation Account Allocation Committee (FAAC) and Nigerian National Petroleum Company (NNPC) funds.
Analysts at Comercio Partners added that the MPR cut is likely to drive fixed income yields lower, particularly at the short to mid-end of the curve, spurring bullish sentiment in that segment. With returns on government securities declining, investor appetite for equities may strengthen. The equity market, they noted, will broadly benefit, though impacts will vary across sectors. Consumer, industrial, telecom, and real estate companies are expected to gain from cheaper credit and improved liquidity, while highly leveraged firms in consumer goods, cement, and industrial sectors could enjoy improved profitability through reduced debt servicing costs. Banks, on the other hand, may face pressure on net interest margins as lending expands but earnings from interest income tighten.
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“The MPC’s decision to cut the MPR reflects confidence in Nigeria’s ongoing disinflationary trend, supported by stable FX, stronger reserves, moderating PMS prices, and higher oil output. At the same time, the committee introduced a 75 percent CRR on non-TSA public sector deposits and adjusted the asymmetric corridor to tighten liquidity management and improve efficiency in the interbank market. These measures address excess banking sector liquidity stemming from fiscal injections, while sustaining price stability. The outlook is underpinned by improved macro fundamentals and global easing, though risks from geopolitical tensions and supply chain disruptions remain. Achieving single-digit inflation will hinge on maintaining exchange rate stability and disciplined liquidity control, with the CBN under Cardoso signalling greater transparency and operational efficiency,” analysts at Comercio Partners said.
Overall, the MPC’s decision marks a cautious but deliberate pivot toward growth, while attempting to safeguard stability through liquidity management. Analysts agree that if complemented by effective fiscal measures and continued reforms, the policy shift has the potential to unlock investment, boost output, and generate much-needed jobs for Nigerians.