Central Bank of Nigeria (CBN) on Tuesday slashed the Monetary Policy Rate (MPR), the benchmark interest rate, by 350 basis points to 23 per cent, from 26.5 percent. CBN Governor Olayemi Cardoso announced the decision at the end of the two-day meeting of the Monetary Policy Committee (MPC) in Abuja, raising expectations of cheaper credit among private sector operators.
Analysts and the Organised Private Sector (OPS), welcomed the CBN decision.
The experts, including real sector operators, however, expressed shock at the unprecedented CBN move, as none had pre-empted the sheer magnitude of the rate adjustment in one fell swoop.
Lagos Chamber of Commerce and Industry (LCCI); Managing Director/Chief Executive, Financial Derivatives Company Limited, Bismarck Rewane; Chairman, Alliance for Economic Research and Ethics Ltd/GTE, Dele Kelvin Oye; and Professor of Capital Market/pioneer President, Capital Market Academics of Nigeria, Professor Uche Uwaleke, all welcomed the central bank’s policy direction.
Equally welcoming CBN’s new policy path were Chief Executive Officer of Centre for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, and Director-General of Nigeria Employers’ Consultative Association (NECA), Mr. Adewale-Smatt Oyerinde, and among others.
They believed the decision to lower the benchmark rate would positively impact the real sector by encouraging cheaper credit to manufacturers as well as boosting jobs.
Rate Cut a Reset, Not Policy Easing
Addressing journalists after the two-day meeting of the Monetary Policy Committee (MPC) in Abuja, CBN Governor Olayemi Cardoso also explained that the reset was principally aimed at repairing the transmission mechanism through which monetary policy decisions influenced money-market rates and the broader economy.
The central bank’s move signalled a major recalibration of its monetary policy framework as inflationary pressures eased and external buffers strengthened.
Cardoso described the downward rate amendment as a “reset and recalibration” of monetary policy rather than a shift to an easing stance.
MPC also recalibrated the Standing Facilities Corridor to +250/-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-Treasury Single Account public-sector deposits.
Cardoso stressed that the corridor adjustment should not be interpreted as a shift in the underlying monetary policy stance.
He said the move constituted an “operational realignment” designed to strengthen monetary policy transmission, improve the effectiveness of the framework, and reinforce MPR as the principal signal of monetary policy.
MPC observed that the divergence between MPR and prevailing market rates had weakened the transmission of its decisions to the financial system.
CBN also said the ongoing overhaul of its monetary policy implementation framework, including the adoption of Nigerian Overnight Financing Rate (NOFR) as a transaction-based benchmark, had improved transparency in money-market operations.
NOFR was introduced by CBN and Financial Markets Dealers Association earlier this year to provide a standardised, transaction-based benchmark for overnight funding and strengthen policy transmission.
