The Monetary Policy Committee of the Central Bank of Nigeria has cut the benchmark interest rate by 350 basis points to 23 per cent from 26.5 per cent, citing easing inflation, improved foreign exchange conditions and greater macroeconomic stability.
The decision, announced by CBN Governor Olayemi Cardoso on Tuesday after the committee’s 307th meeting in Abuja, represents the biggest rate adjustment in the current monetary policy cycle.
“The Committee decided as follows: reset the monetary policy rate at 23 per cent,” Cardoso said.
The MPC also recalibrated the standing facilities corridor to +50/-300 basis points around the Monetary Policy Rate, while retaining the Cash Reserve Requirement 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.
The latest decision follows two consecutive rate holds at 26.5 per cent in May and July, after a 50-basis-point cut in February.
Despite the size of Tuesday’s reduction, Cardoso stressed that the move should not be interpreted as a shift toward monetary easing, describing it instead as an operational adjustment designed to strengthen monetary policy transmission.
“We will stay on the course, which has been a restrictive one, for as long as we have to,” he said.
“And that’s why I re-emphasise that you should not see this as an easing. This is a reset and a recalibration. That is all it is.”
According to the governor, the widening gap between the MPR and prevailing interbank rates had weakened the effectiveness of the policy rate, making it necessary to realign the benchmark with market conditions.
The MPC said the CBN’s adoption of the Nigerian Overnight Financial Average as a transaction-based operational benchmark had improved transparency in money market operations. It added that the latest recalibration would restore the MPR as the principal signal of monetary policy.
‘Fundamentals have changed’
Explaining the timing of the decision, Cardoso pointed to improvements in key economic indicators following years of aggressive monetary tightening.
“Fundamentals have changed,” he said. “We are at macroeconomic stability.”
According to the governor, “The tight thing that we have done, in our view, has done its job. It has worked. The policy tools that we have used have worked.”
He said foreign exchange pressures had eased considerably, while investor confidence and Nigeria’s external position had strengthened.
Nigeria’s gross external reserves stood at $55.25bn as of September 18, 2026, their highest level in 18 years and enough to finance about 11.3 months of imports of goods and services.
The country’s balance of payments surplus rose to $3.51bn in the second quarter from $2.38bn in the first quarter, while the current account surplus increased by 67.92 per cent to $7.54bn from $4.49bn.
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 nearly $1bn by July, bringing the apex bank closer to 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.
Inflation continues to moderate
The rate cut also came amid continued moderation in inflation.
Headline inflation eased to 15.39 per cent in August from 15.43 per cent in July, marking a third consecutive monthly decline.
Food inflation fell to 19.57 per cent from 20.31 per cent, while core inflation moderated to 13.29 per cent from 14.97 per cent.
Month-on-month headline inflation also slowed sharply to 0.71 per cent from 1.57 per cent.
The MPC attributed the moderation to the impact of earlier monetary tightening, exchange rate stability and improved inflation expectations.
However, the committee warned that prolonged geopolitical tensions in the Middle East and election-related spending could create fresh inflationary pressures.
It expects inflation to moderate further in the short to medium term, supported by foreign exchange stability, the lagged effects of previous tightening and improved food supply during the harvest season.
CBN vows to contain election-related liquidity
Cardoso also said the CBN was prepared to manage excess liquidity as Nigeria approaches another election cycle.
“We are ready,” he said, explaining that the bank had studied previous election cycles and developed different scenarios to guide its response.
He said the CBN would closely monitor currency in circulation, banking system liquidity, monetary aggregates and foreign exchange demand.
“We will proactively deploy any tools and instruments to mop up any excess liquidity,” Cardoso said. “We will not allow ourselves to be caught unaware in any form.”
He added that adequate currency would remain available but warned that currency abuse would not be tolerated, noting that the CBN would intensify collaboration with law enforcement agencies.
The governor also encouraged greater use of electronic payments, saying digital transactions improve transparency and create an audit trail.
Economy records stronger growth
On economic growth, the MPC said real Gross Domestic Product expanded by 4.43 per cent in the second quarter of 2026, up from 3.89 per cent in the first quarter.
Non-oil growth accelerated to 4.31 per cent from 3.94 per cent, while the oil sector expanded by 7.31 per cent, compared with 2.57 per cent in the previous quarter.
The Composite Purchasing Managers’ Index also rose to 52.7 points in August from 51.1 points in July, indicating continued expansion in business activity.
Cardoso reflects on three years at CBN
Reflecting on his three years as CBN governor, Cardoso said his administration inherited an economy characterised by declining confidence, persistent currency depreciation, high inflation and a dysfunctional foreign exchange market.
He identified the CBN’s return to its core price and financial stability mandate, exchange rate unification, banking recapitalisation and rebuilding of external reserves as major reforms implemented during his tenure.
Cardoso also said excessive Ways and Means financing and more than N10tn in intervention programmes had previously injected substantial liquidity into the economy.
He described the recently signed fiscal-monetary coordination agreement between the CBN and the Federal Ministry of Finance as an important step toward Nigeria’s planned transition to inflation targeting.
“I think the difference here is that we’ve decided to institutionalise this,” he said, explaining that the arrangement would ensure coordination does not depend on individual officeholders.
“You can’t do it with monetary policy alone,” he added, stressing that effective fiscal coordination would be critical to sustaining low and stable inflation.
The governor also described Nigeria’s return to major global investment indices as a “vote of confidence” that could attract additional foreign investment, deepen the capital market and improve foreign exchange liquidity.
The MPC said it would continue to assess the effectiveness of the recalibrated monetary policy framework, with future decisions remaining data-dependent.
The committee’s next meeting is scheduled for November 23 and 24, 2026.
