The Central Bank of Nigeria has reduced its Monetary Policy Rate by 350 basis points to 23 per cent, marking a significant change in approach after three years focused on stabilising a weakened monetary system. CBN Governor Olayemi Cardoso described the move as a reset rather than conventional easing, aimed at closing the gap between the official policy signal and the rates at which money actually trades in financial markets. The shift reflects confidence that major vulnerabilities have been addressed: inflation has fallen from around 30 per cent when Cardoso took office to 15.39 per cent, the foreign exchange market is more orderly, and gross external reserves have risen above $55 billion compared with net reserves of about $3.3 billion at the beginning of his tenure.
Cardoso stressed that the rate cut should not be mistaken for abandonment of the restrictive policy that characterised his early years. The Monetary Policy Committee retained a high Cash Reserve Requirement and said policy would remain restrictive and data-dependent. The deeper issue the reset addresses is what Cardoso identified as a major cost of the previous foreign exchange system: a distortion equivalent to roughly three per cent of GDP, arising from access to foreign currency depending on connections and preferential channels. That figure exceeded the estimated 2.2 per cent GDP cost of the fuel subsidy at the time, together representing a burden of about 5.2 per cent of GDP.
Part of the foundation for the reset is a shift in remittance flows. Cardoso said monthly inflows from Nigerians abroad had risen from roughly $200 million to about $600 million and were approaching $1 billion by July, following changes to the BVN framework for diaspora Nigerians, new settlement and reporting requirements on international money transfer operators and increased CBN engagement with the diaspora. This matters because lower domestic yields could make Nigerian fixed-income assets relatively less attractive to some international investors, making remittances a different kind of buffer.
The success of the monetary reset depends significantly on the banking sector's response. Multiple observers warned that the rate cut alone does not guarantee cheaper credit for businesses and households. Dele Kelvin Oye, chairman of the Alliance for Economic Research and Ethics, called for a Prime Lending Rate Adjustment Tracker to monitor whether actual lending rates fall in line with the policy rate cut. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, noted that expensive credit has constrained investment, working capital and job creation in the real sector. There is particular risk that banks could raise deposit rates faster than loan rates, widening their margins without providing relief for productive borrowers.
The CBN has also institutionalised coordination with the Ministry of Finance through a new fiscal-monetary agreement designed to prevent the two policy arms from working at cross-purposes. Cardoso emphasised that coordination should no longer depend on individuals in particular offices. The central bank has modelled scenarios around currency in circulation, banking-system liquidity, monetary aggregates and foreign exchange demand ahead of the approaching election cycle, planning to respond proactively using monetary tools rather than waiting for liquidity pressures to become visible. Cash will remain available, Cardoso said, but abuse of the cash system will not be tolerated.