Nigeria: CBN Says Rate Cut to Ease Borrowing Costs for SMEs and Households

The Central Bank of Nigeria (CBN) has described its recent 50 basis point reduction in the Monetary Policy Rate (MPR) as a deliberate move to stimulate economic recovery, with a particular focus on easing financial pressures on small and medium-sized enterprises (SMEs) and households.

Speaking on Television Continental on Thursday, Dr. Victor Oboh, Director of the CBN’s Monetary Policy Department, explained that the adjustment is designed to lower borrowing costs, support production, and ultimately ease the cost of living for Nigerians.

The decision followed the conclusion of the 302nd Monetary Policy Committee (MPC) meeting, where the MPR was reduced from 27.50% to 27.00%. Other measures included:

• Adjusting the Standing Facilities corridor around the MPR to +250/-250 basis points.

• Revising the Cash Reserve Ratio (CRR) for commercial banks to 45%, while retaining 16% for merchant banks.

• Introducing a 75% CRR on non-TSA public sector deposits.

• Keeping the Liquidity Ratio unchanged at 30%.

According to Dr. Oboh, these changes are expected to push commercial banks to lower lending and retail rates, making credit more affordable for businesses and households.

“When the MPR is lowered, commercial banks can access funds at reduced costs and are expected to pass this on to households and businesses. This will help lower production costs, reduce product prices, and improve consumer purchasing power,” he explained.

He noted that many banks are already eager to increase funding to SMEs with strong repayment potential, adding that competitive lending rates would further enhance access to credit in key growth sectors.

On the impact of the rate cut on the naira, Dr. Oboh dismissed concerns, pointing to the country’s external reserves of over $43 billion, a stable exchange rate, strong foreign inflows, and a narrowing gap between official and parallel market rates as evidence of the currency’s resilience. He also cited ongoing disinflation and seasonal harvests as additional buffers against inflationary pressures.

“We do not expect any adverse impact on the strength of the naira. Our fundamentals remain robust, and the prevailing rate continues to attract portfolio inflows and remittances, ensuring healthy liquidity in the FX market,” he said.

The CBN official described the move as a “balancing act” that creates room for growth while maintaining a tight monetary stance to contain inflation. At 27%, the MPR still reflects a tightening bias, even as the central bank works to gradually ease borrowing constraints.

The MPC also factored in global monetary trends, noting similar rate cuts by central banks in the US and Ghana aimed at stimulating growth amid global trade uncertainties.

Looking ahead, Dr. Oboh reaffirmed that future monetary policy decisions would remain data-driven, with a strong focus on sustaining disinflation and supporting economic stability.

“The outlook is very optimistic. Our macro indicators are moving in the right direction, and inflation is projected to continue its downward trajectory for the rest of 2025,” he assured.