CBN Rate Reset Should Lower Borrowing Costs – CPPE

The Centre for the Promotion of Private Enterprise (CPPE) has said the Central Bank of Nigeria’s decision to cut its benchmark interest rate to 23 per cent could ease borrowing costs for businesses and reduce the Federal Government’s domestic debt-service burden.

The CPPE, in a policy brief issued on Tuesday by its Chief Executive Officer, Dr Muda Yusuf, described the 350-basis-point reduction in the Monetary Policy Rate (MPR) from 26.5 per cent to 23 per cent as a significant shift from the prolonged period of tight monetary policy.

Yusuf said the decision represented a recalibration of monetary policy towards supporting economic growth, investment and recovery while maintaining price and financial stability.

“The magnitude of the adjustment was largely unexpected and represents a significant shift from the prolonged restrictive monetary policy regime,” he said.

He noted that the CBN adjusted the asymmetric corridor around the MPR from +50/-450 basis points to +50/-300 basis points.

Yusuf said the rate cut was timely because inflation had been moderating while the cost of maintaining very high interest rates had continued to weigh on businesses.

He also noted that the previous 26.5 per cent MPR had become increasingly misaligned with inflation of about 15.4 per cent and money-market rates of around 20 per cent.

“This weakened the signalling function of the policy rate and raised concerns about the effectiveness of monetary policy transmission,” he said.

He therefore said the reduction should not be viewed only as a move to make money cheaper, but as an attempt to bring the benchmark rate closer to prevailing economic and financial-market conditions.

“The reduction of the MPR to 23% should therefore be viewed not merely as monetary easing, but as an important realignment of the policy rate with prevailing macroeconomic and financial-market conditions,” Yusuf said.

Pinnacle Daily had earlier reported that the Monetary Policy Committee (MPC) reset the benchmark interest rate to 23 per cent at its 307th meeting on September 22, 2026.

Businesses expected to get cheaper credit

The policy group said the biggest immediate opportunity from the rate reset was for businesses in the real sector, where high borrowing costs have constrained investment, production, working capital and job creation.

It said manufacturers, farmers, construction companies, logistics operators and other businesses with long investment cycles and relatively narrow profit margins had been particularly affected by expensive financing.

According to the CPPE, the lower MPR could reduce the cost of capital, improve business cash flows and encourage new investment.

READ ALSO:

• Reject Sugar Tax Bill, CPPE Tells Reps, Warns of Job, Investment Losses
• Nigeria’s Inflation Eases to 15.39% as Food Prices Slow
• Nigeria’s Debt Stock Jumps 82.4% in 3 Years
• Businesses Still Face Costly Credit Despite CBN’s Inflation Gains
• CBN Cuts Interest Rate to 23% to Strengthen Policy Transmission

But Yusuf stressed that the benefits would depend on whether commercial banks transmit the CBN’s rate cut to their customers.

“The ultimate economic value of the decision will depend on transmission,” he said.

The CPPE expects banks to progressively reduce lending rates on both new and existing credit facilities as the new monetary policy environment takes effect.

“Without meaningful transmission to borrowers, the impact of the policy adjustment on investment and economic growth would be limited,” Yusuf said.

Rate cut may ease government debt burden

The CPPE also said the rate reduction could have important implications for government finances because high interest rates have increased the cost of servicing domestic debt.

Yusuf said high market yields had increased the Federal Government’s domestic debt-service burden and placed additional pressure on its already constrained finances.

He said sustained moderation in interest rates could lower the additional cost of government borrowing and eventually reduce domestic debt-service costs.

“This could create additional fiscal space for infrastructure, security, education, healthcare and other development priorities,” he said.

However, the CPPE said the expected fiscal benefit would depend on whether the lower MPR leads to lower yields across the government securities market.

Warns of FX, capital-flow risks

The business group also warned that the rate cut could create foreign-exchange and investment-flow risks if the difference between Nigerian interest rates and those in other major economies becomes too wide.

It said Nigeria’s move towards lower interest rates was coming at a time when some major central banks were tightening monetary policy.

This could affect the attractiveness of naira-denominated assets to foreign investors and potentially trigger portfolio-flow reversals, which occur when investors withdraw money from financial assets in a country.

Such outflows could put renewed pressure on the foreign-exchange market.

However, the CPPE said Nigeria was entering the current monetary easing cycle from a stronger external position than in previous episodes.

It cited improvements in foreign reserves, greater stability in the foreign-exchange market and stronger external-sector buffers as factors giving the CBN more room to manage the transition.

Yusuf nevertheless urged the CBN to remain vigilant and use tools such as open-market operations when necessary to manage excessive market volatility and protect exchange-rate stability.

Open-market operations involve the CBN buying or selling financial instruments to influence the amount of money circulating in the banking system.

Lower rates alone will not solve inflation

The CPPE said the rate cut would not by itself deliver sustainable economic recovery because a significant part of Nigeria’s inflation is driven by supply-side pressures.

It identified energy costs, logistics bottlenecks, insecurity, constraints on food production, infrastructure shortages and high regulatory costs as factors that continue to raise prices and business operating costs.

The group therefore called for the monetary policy adjustment to be supported by fiscal and structural reforms aimed at reducing production costs, improving productivity, strengthening food and energy security and expanding domestic production.

Yusuf said this was necessary to ensure that cheaper credit resulted in higher investment and production rather than renewed inflation.

“This is critical to ensuring that monetary easing translates into investment and additional output rather than renewed inflationary pressure,” he said.

The CPPE maintained that the September MPC decision marked a significant change in the monetary policy cycle, but added that its effectiveness should ultimately be assessed through four developments: whether commercial lending rates fall, whether private investment and productive-sector credit increase, how inflation behaves and whether the foreign-exchange market remains stable.

The group added that the immediate priority should therefore be to ensure that the lower policy rate is transmitted to businesses and borrowers while the CBN manages liquidity, capital-flow and exchange-rate risks.