CBN reduces monetary policy rate to 26.5% as CPPE says transmission, fiscal discipline are critical

Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 27 per cent to 26.5 per cent but CPPE said a major concern remains the weak transmission mechanism between monetary policy adjustments and actual lending rates in the real economy.

Reacting to CBN’s rate cut CPPE said “Despite reductions in the MPR, lending rates to businesses remain elevated due to structural factors including ; high Cash Reserve Ratio (CRR), which constrains bank liquidity; elevated cost of deposits; risk premiums reflecting macroeconomic uncertainty; crowding-out effects from government borrowing and high operating costs within the banking system.

“Unless these structural rigidities are addressed, the benefits of monetary easing may not fully translate into lower borrowing costs for manufacturers, SMEs, agriculture, and other productive sectors.

“Strengthening policy transmission should therefore be a priority. This may require complementary measures to ease liquidity constraints, improve credit-risk frameworks, and reduce distortions in government domestic borrowing patterns. Monetary easing must reach the real economy to deliver meaningful growth outcomes”.

It said “While monetary policy is moving in the right direction, fiscal vulnerabilities remain significant. Nigeria’s elevated public debt levels, persistent fiscal deficits, and ongoing budget financing challenges pose macroeconomic risks.

“Debt-service obligations continue to absorb a substantial portion of government revenues, limiting fiscal flexibility. sustainable macroeconomic stability requires; stronger non-oil revenue mobilisation; expenditure rationalisation; improved fiscal transparency; credible deficit reduction strategy and reduced dependence on high-cost domestic borrowing.

“Without fiscal consolidation, monetary easing could be undermined by continued fiscal pressures and crowding-out effects in the financial system.
Policy coordination between fiscal and monetary authorities is therefore essential”.

CBN Governor Olayemi Cardoso announced the rate adjustment at a news conference on Tuesday during the committee’s 304th meeting in Abuja.

The Monetary Policy Committee of the Central Bank lowered the policy rate by 50 bps to 26.50%, from 27%, while keeping key parameters unchanged.

The authority retained the asymmetric corridor around the MPR at +50bps/-450bps and kept the cash reserve ratio (CRR) for commercial banks at 45.00%.

CRR for merchant banks was retained at 16.00%, along with a 30% liquidity ratio. The CBN also retained the 75.0% CRR on Non-TSA public sector deposits.

Inflation has been easing with the latest reading at 15.10% in January 2026, and the pressure on prices is no longer as intense as before. In a commentary note, Cowry Asset Limited said this slowdown in inflation has provided the CBN room to slightly relax monetary conditions without risking price instability.

Also, at the meeting, the Cash Reserve Ratio (CRR) was left unchanged at 45% for commercial banks and 16% for merchant banks, while the Liquidity Ratio remained at 30% as the CBN remains cautious about rate loosening while still maintaining strong control over system liquidity.

“The upshot from this MPC meeting is that a lower policy rate can gradually reduce borrowing costs for the real sector of the economy. While lending rates may not fall immediately, the direction is now more supportive for businesses and economic activity.

“With interest rates beginning to come down, fixed-income returns may become less attractive over time. This supports continued interest in equities and other risk assets, especially for investors seeking better long-term returns”, the investment firm said.
The research unit of Cowry Asset Limited believes the decision signals a careful shift from aggressively fighting inflation to supporting growth, while maintaining financial stability as the focus. It’s a measured step and not a full easing cycle yet, but a clear change in tone.

The Centre for the Promotion of Private Enterprise (CPPE) welcomes the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria to reduce the Monetary Policy Rate (MPR) by 50 basis points to 26.5 percent. The announcement by the Governor, Olayemi Cardoso, marks a continuation of the gradual shift from aggressive monetary tightening toward measured easing.

This policy direction is appropriate and growth-supportive. It reflects improving macroeconomic fundamentals and reinforces confidence in the economy’s stabilisation trajectory.

CPPE said “The easing is underpinned by notable macroeconomic progress; with headline inflation declining consistently for eleven consecutive months; supported by stronger export earnings and remittance inflows which has helped anchor inflation expectations.

“These indicators collectively signal strengthening macroeconomic resilience. The CBN’s decision demonstrates responsiveness to data and reinforces policy credibility. The CPPE commends the monetary authorities for consolidating stability gains while cautiously pivoting toward growth.

“The rate cut sends a positive signal to investors and the business community. A moderation in the policy rate, even if incremental, supports; improved investor sentiment; gradual easing of financing conditions; trengthening of private-sector confidence and prospects for credit expansion.

“Given the significant cost pressures businesses have faced over the past two years — energy, logistics, exchange rate volatility, and high interest rates — even modest monetary accommodation provides psychological and financial relief. However, the real impact will depend on transmission effectiveness easing cycle presents strategic opportunities for investors”.