The Central Bank of Nigeria (CBN) has reduced its benchmark interest rate by 350 basis points to 23%, the lowest level since February 2024. However, Nigerian consumers and businesses hoping for cheaper bank loans may have to wait longer, as commercial lending rates remain elevated.
CBN Resets Monetary Policy Rate
The CBN's Monetary Policy Committee (MPC) reset the Monetary Policy Rate (MPR) to 23% from 26.5%, a reduction of 350 basis points. The decision took the benchmark to its lowest level since February 2024.
CBN Governor Olayemi Cardoso described the adjustment as a "reset and recalibration" aimed at improving the effectiveness of monetary policy rather than simply signalling a dramatic shift towards cheaper money.
The apex bank also retained the Cash Reserve Requirement (CRR) for deposit money banks at 45% and merchant banks at 16%. The Standing Facilities Corridor was recalibrated to +50/-300 basis points around the new 23% MPR.
Manufacturers Want Cheaper Bank Loans
For Nigerian businesses, attention has shifted from the CBN's benchmark rate to what banks actually charge customers. The Manufacturers Association of Nigeria (MAN) welcomed the reduction but warned that its impact could remain limited if lending rates stay around 27% to 30%.
MAN Director-General Segun Ajayi-Kadir said manufacturers were particularly concerned about the actual interest rates they pay when approaching banks for credit. High borrowing costs can make it more expensive for manufacturers to finance raw materials, inventories, machinery and expansion, potentially feeding into production costs.
LCCI Wants Rate Cut Passed to Businesses
The Lagos Chamber of Commerce and Industry (LCCI) expressed similar concerns, saying the crucial issue is whether the lower MPR translates into affordable loans and greater access to credit, particularly for small and medium-sized businesses, according to a report by Daily Sun.
The chamber noted that banks also consider borrowers' cash flow, collateral, credit history and sector risks when pricing loans, meaning an MPR reduction does not automatically produce an equivalent decline in lending rates.
For Nigerians seeking credit, the real test will be what happens at commercial banks. Until lending rates begin to fall meaningfully, individuals and businesses could continue facing expensive loans despite the CBN's substantial reduction in its benchmark interest rate.
In related news, the naira may depreciate following the CBN's 350-basis-point cut in its MPR to 23%, according to Bismarck Rewane, Managing Director of Financial Derivatives Company. Rewane said the lower interest rate could reduce returns on naira assets and put pressure on the currency.
