LCCI, MAN, Others Hail CBN’s Major Rate Cut

BY HENRY TYOHEMBA, Abuja AND OLUSHOLA BELLO, BUKOLA ARO-LAMBO, Lagos

The Lagos Chamber of Commerce and Industry (LCCI), Manufacturers Association of Nigeria (MAN), Association of Small Business Owners of Nigeria (ASBON) and economists have welcomed the Central Bank of Nigeria’s (CBN) decision to cut the Monetary Policy Rate (MPR) by 350 basis points, from 26.5 per cent to 23 per cent, saying the move could lower borrowing costs, improve access to credit and stimulate production and investment.

However, the business groups have stressed that the effectiveness of the decision would depend largely on whether commercial banks transmit the reduction to their lending rates, warning that high borrowing costs remain a major constraint to manufacturers and small businesses.

The CBN Governor, Olayemi Cardoso, announced the decision yesterday at the conclusion of the 307th meeting of the Monetary Policy Committee (MPC), held on Monday and Tuesday.

The committee also recalibrated the Standing Facilities Corridor to plus 50 and minus 300 basis points around the MPR, while retaining the Cash Reserve Requirement (CRR) 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 director-general of MAN, Segun Ajayi-Kadir, described the reduction as a positive development but said the next critical step was to ensure that it translated into lower lending rates.

He said the decision showed the CBN’s willingness to ease pressure on the real sector and respond to persistent calls from businesses.

“This development is indicative of CBN’s positive disposition to easing the pressure on the real sector and responding to the persistent call of business, as well as yielding to the dynamism of the business environment. However, the elephant in the room remains the interest rate that an average manufacturer will pay when he or she approaches the bank,” he said.

Ajayi-Kadir said the reduction was still insufficient to close the competitiveness gap between Nigerian manufacturers and their counterparts in countries such as Egypt, Morocco and South Africa, where borrowing costs are significantly lower.

“For meaningful impact we need to witness further deep cuts. Even at 23 per cent MPR, prime lending rate will still be 27 to 30 per cent. This is not a palatable situation for any manufacturer. No manufacturer anywhere in the world can be competitive borrowing at 30 per cent,” he said.

He expressed concern that despite three previous MPC rate cuts, bank lending rates had remained high.

“We need to interrogate the transmission end. This is because our experience is that, despite the last three MPC cuts and drop in MPR, bank lending rates remained high. There is a need for additional measures to achieve noticeable impact,” he said.

Ajayi-Kadir called on the CBN to use moral suasion and regulation to encourage banks to transmit the reduction to borrowers.

“We cannot have disinflation on paper and high cost of credit in factory,” he said.

MAN proposed complementary measures, including reducing the CRR from 45 per cent to free more liquidity for manufacturing, operationalising the N1 trillion Manufacturing Stabilisation Fund at nine per cent, creating a special single-digit lending window for manufacturers and introducing a five per cent Development Finance rate for small and medium-sized enterprises.

The association also urged the CBN to continue easing towards a sub-15 per cent MPR in the medium term, while the government addresses power, foreign exchange, logistics and multiple taxation, which it said add more than 40 per cent to production costs.

Similarly, the director-general of the LCCI, Dr Chinyere Almona, welcomed the rate cut, describing it as a significant easing of monetary conditions for businesses, particularly Micro, Small and Medium Enterprises (MSMEs), which have been constrained by high credit costs.

“The Lagos Chamber of Commerce and Industry welcomes the decision of the Central Bank of Nigeria Monetary Policy Committee to reduce the Monetary Policy Rate by 350 basis points, from 26.5 percent to 23 percent. The decision represents a significant easing of monetary conditions and is a welcome development for businesses, particularly MSMEs, which have been severely constrained by the high cost of credit,” she said.

Almona, however, cautioned that a lower MPR would not automatically translate into cheaper or more accessible loans.

“The reduction in the MPR should not be interpreted as an automatic reduction in the cost or availability of credit to businesses. The transmission from the policy rate to lending rates and actual credit allocation remains critical,” she said.

According to her, businesses continue to contend with high energy costs, logistics challenges, exchange-rate risks and infrastructure gaps, all of which influence banks’ assessment of credit risks.

“Unless the underlying business risks confronting enterprises are simultaneously addressed, the reduction in the MPR may have a limited impact on actual credit access for many SMEs. Credit transmission must be the next priority,” Almona said.

She called for close monitoring of banks’ response to the policy change, stronger credit guarantees and de-risking instruments, as well as greater use of cash-flow-based lending and movable assets as collateral.

The LCCI chief also urged the government and monetary authorities to ensure that monetary easing was matched by measures capable of reducing structural risks and directing liquidity towards manufacturing, agriculture, agro-processing, trade, logistics, technology, healthcare and construction.

The national president of ASBON, Dr Femi Egbesola, also described the decision as welcome, saying it indicated growing confidence that inflation was becoming sufficiently stable to allow greater attention to economic growth and credit.

“The CBN’s decision to reduce the MPR from 26.5 per cent to 23 per cent is a welcome development. It is more than a reduction in the policy rate; it signals growing confidence that the inflationary environment is becoming sufficiently stable to begin giving greater attention to economic growth and credit,” he said.

Egbesola said the move could be significant for MSMEs because the cost of capital remained one of the biggest constraints to business expansion.

He, however, said the real test was whether the reduction would reach businesses at the point of borrowing.

“If banks continue to lend to small businesses at very high rates, the impact of this decision will remain largely on paper,” he said.

He added: “Therefore, the next phase must be about transmission, cheaper, longer-term and more accessible credit flowing into productive businesses. We should judge this policy not merely by what happens to interest rates, but by whether factories expand, traders increase inventory, businesses invest, and more Nigerians get jobs.”

Economists Welcome Easing

Economists and financial analysts also welcomed the decision, although they differed on the extent and speed of its impact.

Professor Evans Osabuohien, an economist at Covenant University and founding chair of the DePECOS Institutions and Development Research Centre (DIaDeRC), said the reduction would lower the cost of funds and support production, investment and employment.

“The reduction will have a way of bringing down the cost of funds. In the short run, it will increase production, increase the availability of eligible funds and also increase the rate of investment,” he said.

He said the immediate transmission should come through lower interest rates and reduced financing costs, particularly for entrepreneurs and small businesses.

“What we are seeing to happen in the short term is production. One, it will bring down interest rates; two, it will make the cost of funding cheaper; and three, it will help entrepreneurs and small firms to be able to borrow more and have more financial resources to increase production,” he said.

The Chief Investment Officer and Global Macro Strategist at VNL Capital Asset Management, Dr Ifeanyi Ubah, said although an easing cycle had been anticipated, the size of the cut was unexpected.

“This is a genuine surprise. This is a strong signal that the CBN is reading the domestic macro picture, inflation trajectory, naira stability, and reserve accretion with more confidence than the market priced in,” he said.

Ubah said the naira’s stability, stronger external reserves and Nigeria’s decision not to access the Eurobond market during the year had provided room for the CBN to ease without immediately reigniting foreign-exchange pressure.

“The timing is deliberate. The naira has held its footing, external reserves have strengthened, and Nigeria hasn’t needed to tap the Eurobond market this year, all of which gives the MPC room to ease without reigniting forex pressure,” he said.

He said retaining the CRR for deposit money banks at 45 per cent and the liquidity ratio at 30 per cent indicated that the CBN was seeking to reduce the cost of credit while maintaining control over liquidity.

“For the real economy, a lower MPR should start filtering through to lending rates, which is the catalyst businesses and consumers have been waiting for: cheaper working capital, more accessible consumer credit, and some relief on debt-service costs,” he said.

The director/CEO of the Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, described the size of the reduction as largely unexpected and said it represented a significant adjustment after a prolonged period of monetary tightening.

He said the decision was timely given the moderation in inflation, which stood at about 15.4 per cent, and the gap between the previous MPR of 26.5 per cent and money-market rates of around 20 per cent.

“The reduction should therefore be viewed not merely as monetary easing, but as an important realignment of the policy rate with prevailing macroeconomic conditions,” Yusuf said.

He said the adjustment of the asymmetric corridor from plus 50/minus 450 to plus 50/minus 300 basis points would provide some relief to the real sector, where high financing costs had constrained investment and employment.

“For many businesses, commercial lending rates have remained at levels that are difficult to reconcile with productive investment, particularly in manufacturing, agriculture, construction and logistics,” he said.

Yusuf urged banks to pass the reduction on to borrowers through lower lending rates on new and existing facilities, warning that weak transmission could limit the impact on economic growth.

He also said lower rates could reduce the Federal Government’s domestic debt-service burden and create additional fiscal space for infrastructure, security and healthcare.

On potential risks, Yusuf acknowledged the possibility of portfolio-flow reversals amid divergent global monetary policies but said Nigeria’s improved reserves and relatively stable foreign-exchange market provided a buffer. He called for continued vigilance and the use of Open Market Operations to preserve stability.

The Managing Director of APT Securities and Funds Limited, Kasimu Kurfi, said the rate cut came as a surprise to most financial analysts.

“Most financial analysts did not expect this cut. Many expected rates to remain unchanged, but it has changed,” Kurfi said.

He described the decision as positive for the real sector, particularly manufacturers, because lower borrowing costs could support expansion and employment.

“It is a good development and a welcome development because for most manufacturers, the rate is now a bit more reasonable to borrow, and that will enable them to review the cost of their borrowing by at least 350 basis points or more,” he said.

A Jos-based macroeconomic analyst, Mr Adams Luka, said the reduction represented a significant step towards lowering the cost of funds.

“When the cost of funds for banks comes down, there is usually a possibility that lending rates will also moderate,” Luka said.

He cautioned, however, that the effect might not be immediate because commercial banks would still consider their funding costs, liquidity, credit risks and prevailing economic conditions before adjusting lending rates.

“The direction of the latest decision suggests that the Central Bank is becoming more comfortable with the inflation situation and is creating room for lower borrowing costs,” he said.

CBN: Rate Cut Is a Policy Reset

Explaining the decision, Cardoso said the reduction was primarily an operational reset designed to strengthen monetary-policy transmission and restore the MPR as the principal signal of monetary conditions, rather than an outright abandonment of the restrictive policy stance.

He said the decision was prompted partly by a gap between the MPR and prevailing interbank market rates, which had weakened the effectiveness of the CBN’s policy signal.

“The rate at which the interbank is working is disconnected with the MPR, and there is a need to fix that.

“If you don’t fix that, your transmission process and your transmission mechanism weakens. And we know that what is important to us is for that transmission mechanism to work as effectively and efficiently as possible,” he said.

Cardoso said the CBN had become more confident in the economy’s underlying fundamentals following a period of monetary tightening, exchange-rate stability and improvements in the country’s external position.

He stressed that the decision should not be interpreted as a sudden shift to loose monetary policy.

“We will stay on the course which has been a restrictive one for as long as we have to,” he said, describing the decision as a reset and recalibration.

The MPC said the moderation in inflation reflected the impact of previous monetary tightening, greater exchange-rate stability and improved inflation expectations.

It also said the balance of payments surplus rose to $3.51 billion in the second quarter of 2026, from $2.38 billion in the first quarter, while the current account surplus increased by 67.92 per cent to $7.54 billion from $4.49 billion.

External reserves stood at $55.25 billion as of September 18, the highest level in 18 years, according to the CBN, providing about 11.3 months of import cover.

The committee said economic activity remained resilient, with improvements in both the oil and non-oil sectors. Technology, crop production, real estate, livestock, financial services and trade were among the sectors supporting growth.

Election Spending

Cardoso also addressed concerns over increased money circulation ahead of the 2027 elections, saying the CBN had studied possible scenarios around election-related spending.

He said the apex bank would monitor currency in circulation, banking-system liquidity, monetary aggregates and foreign-exchange demand, and deploy instruments to mop up excess liquidity where necessary.

“We will carefully monitor currency in circulation, banking system liquidity, monetary aggregates and foreign exchange demand and act accordingly,” he said.

The latest reduction follows a period of aggressive monetary tightening. The MPR had risen to 27.5 per cent before the easing cycle began in September 2025, when the MPC cut it by 50 basis points to 27 per cent, ending a run of 16 consecutive hikes dating back to 2022.

The rate was retained at 27 per cent in November 2025 before being cut by another 50 basis points to 26.5 per cent in February 2026. The MPC retained it at 26.5 per cent in May and July before the latest 350-basis-point reduction.

The MPR, introduced in 2006 to replace the Minimum Rediscount Rate, remains the CBN’s principal signal of the direction of monetary policy.