CBN Interest Rate Cut: MPR Reduced to 23% From 26.5%

The Central Bank of Nigeria has reduced its Monetary Policy Rate from 26.5% to 23%, cutting the benchmark by 350 basis points as inflation continues to moderate and Nigeria’s external position strengthens.

The decision was taken at the Monetary Policy Committee’s 307th meeting, held on September 21 and 22, 2026. The committee also recalibrated its Standing Facilities Corridor while retaining existing cash reserve requirements for banks.

CBN resets benchmark rate to 23%

The MPC decided to reset the Monetary Policy Rate at 23%, compared with 26.5% previously.

It also adjusted the Standing Facilities Corridor to 50 basis points above and 300 basis points below the MPR. The Cash Reserve Requirement was retained at 45% for deposit money banks, 16% for merchant banks and 75% for non-Treasury Single Account public-sector deposits.

The CBN said the move was an operational realignment designed to strengthen monetary policy transmission and restore the MPR as the principal signal of monetary policy.

Governor Olayemi Cardoso said the decision should not be interpreted simply as a shift towards monetary easing. The CBN’s stated objective is to better align the policy rate with prevailing market conditions and improve the effectiveness of its monetary policy framework.

The decision came after the MPC had kept the MPR at 26.5% at its May and July meetings, following a 50-basis-point reduction in February.

Inflation continues to moderate

The rate adjustment comes as Nigeria’s inflation indicators have continued to move lower.

Headline inflation declined to 15.39% in August from 15.43% in July, according to the MPC. Food inflation fell to 19.57% from 20.31%, while core inflation declined to 13.29% from 14.97%.

Month-on-month headline inflation also slowed significantly, falling to 0.71% in August from 1.57% in July.

The MPC attributed the moderation partly to the effects of earlier monetary tightening, exchange-rate stability and improving inflation expectations. It said inflation could moderate further in the short to medium term if foreign-exchange stability continues and food supplies improve during the harvest season.

The committee nevertheless identified risks to the inflation outlook, including prolonged geopolitical tensions in the Middle East and election-related spending.

External reserves reach $55.25 billion

Nigeria’s external position has also strengthened.

The CBN said gross external reserves stood at $55.25 billion as of September 18, the highest level in 18 years. The reserves were sufficient to cover approximately 11.3 months of imports of goods and services, according to the MPC.

The committee also reported an improvement in Nigeria’s balance of payments. The surplus increased to $3.51 billion in the second quarter of 2026 from $2.38 billion in the first quarter.

The current-account surplus rose by 67.92% to $7.54 billion from $4.49 billion over the same period.

These developments were among the factors the MPC cited in assessing the economy’s resilience and determining that there was sufficient room for the policy-rate reset.

Economy grows faster in second quarter

The CBN also pointed to stronger economic activity.

Real Gross Domestic Product grew by 4.43% in the second quarter of 2026, compared with 3.89% in the first quarter.

The non-oil sector expanded by 4.31%, while oil-sector growth accelerated to 7.31% from 2.57% in the preceding quarter. The Composite Purchasing Managers’ Index also increased to 52.7 points in August from 51.1 points in July, indicating continued expansion in business activity.

The MPC said domestic output growth is expected to remain resilient through the rest of 2026, supported by improvements in crude-oil production, agriculture and other business activities.

What the rate cut could mean for borrowers

A lower benchmark interest rate can influence borrowing costs across the financial system, although the reduction in the MPR does not automatically mean that commercial banks will reduce all lending rates by the same amount.

The immediate effect will depend on how banks and other financial institutions transmit changes in monetary policy into lending and deposit rates.

Business groups have already called for cheaper credit following the CBN’s decision. The Organised Private Sector has argued that lower monetary-policy rates should eventually translate into improved access to financing for businesses.

The effect on households will therefore depend on how quickly the reduction feeds through to consumer and business lending, as well as developments in inflation and financial-market conditions.

Investors face a changing fixed-income environment

The new rate also has implications for investors in fixed-income instruments.

Nigerian fixed-income yields had already begun declining before the MPC decision, with the CBN reducing yields on some short-term securities as market conditions changed.

A lower policy-rate environment can place further downward pressure on yields, although actual market rates will continue to depend on liquidity conditions, government borrowing, inflation expectations and investor demand.

For savers and investors, this means returns on some interest-bearing instruments may change as financial institutions adjust to the new rate environment.

CBN warns of election-related liquidity risks

Despite the rate reset, the CBN said it remains concerned about the potential inflationary effects of increased spending as Nigeria approaches another election cycle.

Cardoso said the central bank has studied previous election cycles and prepared scenarios for managing possible increases in currency circulation, banking-system liquidity, monetary aggregates and foreign-exchange demand.

The governor said the CBN would use available monetary-policy instruments to contain excess liquidity if necessary.

The MPC also warned that geopolitical tensions could create additional pressure through higher global energy prices.

Next MPC meeting scheduled for November

The CBN said future monetary-policy decisions will remain data-dependent as it assesses the effect of the recalibrated framework.

The MPC’s next meeting is scheduled for November 23 and 24, 2026.

For now, the 350-basis-point reduction marks a significant change in Nigeria’s benchmark interest rate. The CBN’s explanation, however, frames the decision primarily as an operational reset intended to improve monetary-policy transmission rather than an abandonment of its focus on controlling inflation.