BREAKING: CBN Slashes Interest Rate to 23% in Biggest Cut of Current Policy Cycle

• The Central Bank of Nigeria has cut its benchmark interest rate by 350 basis points to 23 per cent, citing easing inflation, improved foreign exchange conditions and stronger external reserves.

The Monetary Policy Committee of the Central Bank of Nigeria (CBN) has cut the benchmark interest rate by 350 basis points, reducing the Monetary Policy Rate from 26.5 per cent to 23 per cent.

The decision, announced by CBN Governor Olayemi Cardoso on Tuesday after the committee’s 307th meeting in Abuja, represents the biggest rate adjustment in the current monetary policy cycle.

“The Committee decided as follows: reset the monetary policy rate at 23 per cent,” Cardoso said.

The MPC also recalibrated the standing facilities corridor to +50/-300 basis points around the MPR.

However, it retained the Cash Reserve Requirement 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 latest decision came after two consecutive meetings in May and July where the MPC retained the MPR at 26.5 per cent. The committee had earlier reduced the rate by 50 basis points in February.

CBN Explains Why Rate Was Cut

Despite the size of the reduction, Cardoso stressed that the decision should not be interpreted as a shift toward monetary easing.

According to him, the adjustment was aimed at recalibrating the monetary policy framework and improving the transmission of monetary policy to the wider economy.

“We will stay on the course, which has been a restrictive one, for as long as we have to,” Cardoso said.

He added: “And that’s why I re-emphasise that you should not see this as an easing. This is a reset and a recalibration. That is all it is.”

Cardoso explained that the gap between the MPR and prevailing interbank rates had weakened the effectiveness of the benchmark rate, making it necessary for the CBN to realign its policy rate with prevailing market conditions.

The MPC also noted that the adoption of the Nigerian Overnight Financial Average as a transaction-based operational benchmark had improved transparency in money market operations.

The committee said the latest recalibration would help restore the MPR as the principal signal of monetary policy.

Inflation, Forex Conditions Improve

Explaining the timing of the decision, Cardoso said Nigeria’s macroeconomic fundamentals had improved following several years of aggressive monetary tightening.

“Fundamentals have changed,” he said. “We are at macroeconomic stability.”

He added that the tight monetary policy measures implemented by the CBN had achieved their intended objectives.

“The tight thing that we have done, in our view, has done its job. It has worked. The policy tools that we have used have worked,” Cardoso said.

The governor said foreign exchange pressures had eased significantly, while investor confidence and Nigeria’s external position had strengthened.

Nigeria’s gross external reserves stood at $55.25bn as of September 18, 2026, described in the statement as the highest level in 18 years and enough to finance about 11.3 months of imports of goods and services.

The country’s balance of payments surplus also increased to $3.51bn in the second quarter from $2.38bn in the first quarter.

Similarly, the current account surplus rose by 67.92 per cent to $7.54bn from $4.49bn.

Cardoso attributed part of the improvement in Nigeria’s external buffers to stronger diaspora remittances.

He said monthly remittances had increased from about $200m when the CBN intensified its reforms to almost $1bn by July, bringing the apex bank closer to its $1bn monthly target.

According to him, the reforms included expanding access to Bank Verification Numbers for Nigerians living abroad, strengthening oversight of International Money Transfer Operators and requiring dedicated settlement accounts.

Inflation Continues to Moderate

The interest rate reduction also came as inflation continued to moderate.

Headline inflation eased slightly to 15.39 per cent in August from 15.43 per cent in July, marking the third consecutive monthly decline.

Food inflation dropped to 19.57 per cent from 20.31 per cent, while core inflation fell to 13.29 per cent from 14.97 per cent.

Month-on-month headline inflation also slowed significantly to 0.71 per cent from 1.57 per cent.

The MPC attributed the moderation to the effects of earlier monetary tightening, improved exchange rate stability and better inflation expectations.

However, the committee warned that prolonged geopolitical tensions in the Middle East and election-related spending could create additional inflationary pressures.

It said inflation was expected to moderate further in the short to medium term, supported by foreign exchange stability, the delayed impact of previous monetary tightening and improved food supply during the harvest season.

CBN Warns Against Excess Liquidity

Cardoso also said the CBN was prepared to manage excess liquidity as Nigeria moves closer to another election cycle.

“We are ready,” he said, explaining that the apex bank had studied previous election cycles and developed different scenarios to respond to potential liquidity pressures.

He said the CBN would monitor currency in circulation, banking system liquidity, monetary aggregates and foreign exchange demand.

“We will proactively deploy any tools and instruments to mop up any excess liquidity,” Cardoso said. “We will not allow ourselves to be caught unaware in any form.”

The governor said adequate currency would remain available but warned that currency abuse would not be tolerated.

He also said the CBN would intensify collaboration with law enforcement agencies while encouraging Nigerians to make greater use of electronic payment channels, which he said improve transparency and provide an audit trail.

Nigerian Economy Records Stronger Growth

The MPC also reported stronger economic activity during the second quarter of 2026.

Real Gross Domestic Product grew by 4.43 per cent in Q2, compared with 3.89 per cent in the first quarter.

Non-oil growth accelerated to 4.31 per cent from 3.94 per cent, while the oil sector expanded by 7.31 per cent, up from 2.57 per cent.

The Composite Purchasing Managers’ Index also increased to 52.7 points in August from 51.1 points in July.

Reflecting on his three years as CBN governor, Cardoso said he inherited an economy characterised by declining confidence, persistent currency depreciation, high inflation and significant challenges in the foreign exchange market.

He identified the CBN’s return to its core price and financial stability mandate, exchange rate unification, banking recapitalisation and the rebuilding of external reserves among the major changes implemented during his tenure.

Cardoso also said excessive Ways and Means financing and more than N10tn in intervention programmes had previously injected substantial liquidity into the economy.

CBN, Finance Ministry Deepen Policy Coordination

The governor also highlighted the recently signed fiscal-monetary coordination agreement between the CBN and the Federal Ministry of Finance as an important step toward Nigeria’s planned transition to inflation targeting.

“I think the difference here is that we’ve decided to institutionalise this,” Cardoso said, explaining that the framework would ensure policy coordination does not depend solely on individual officeholders.

“You can’t do it with monetary policy alone,” he added, stressing the importance of fiscal coordination in maintaining low and stable inflation.

Cardoso also described Nigeria’s return to major global investment indices as a “vote of confidence”, saying it could help attract additional foreign investment, deepen the capital market and improve foreign exchange liquidity.

The MPC said it would continue to assess the effectiveness of the recalibrated monetary policy framework, with future decisions remaining dependent on economic data and prevailing conditions.

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