The Central Bank of Nigeria (CBN) has cut the Monetary Policy Rate (MPR) from 26.5 percent to 23 percent, citing the need to strengthen monetary policy transmission and align its operating framework with prevailing market conditions.
The decision was taken at the latest meeting of the Monetary Policy Committee (MPC), which had 11 members in attendance.
CBN Governor, Olayemi Cardoso, announced the decisions on Tuesday during a media briefing in Abuja.
According to Cardoso, the committee also recalibrated the Standing Facilities Corridor to +50 and -300 basis points around the new MPR.
The latest adjustment represents a 3.5 percentage-point reduction from the 26.5 per cent rate retained at the MPC’s previous meeting in July.
The MPC, however, retained the Cash Reserve Requirement (CRR) for deposit money banks at 45 per cent, merchant banks at 16 per cent and non-TSA public sector deposits at 75 per cent.
Cardoso said the decision to reset the MPR and adjust the policy corridor was aimed at improving the effectiveness of monetary policy transmission and restoring the MPR’s role as the key guide for market interest rates.
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He stressed that the adjustment should not be interpreted as a change in the overall direction of monetary policy.
“The MPC emphasized that the recalibration of the corridor does not constitute a change in the current monetary policy stance, but rather an operational reset to enhance the effectiveness of monetary policy and support the transition to an inflation targeting framework,” Cardoso said.
The governor said the committee was concerned about the growing divergence between the MPR and prevailing market rates, which he said had weakened the transmission of monetary policy to the wider economy.
“Members noted that the observed divergence between the MPR and the prevailing market rates had weakened the effectiveness of monetary policy transmission,” he said.
Cardoso said the CBN’s efforts to strengthen its monetary policy implementation framework had included the adoption of the Nigerian Overnight Financing Rate (NIFOR) as a transaction-based operational benchmark.
He said the development had improved transparency in money market operations and provided a stronger basis for the committee to realign the policy framework.
“The MPC therefore considered the reset of the MPR and recalibration of the policy corridor appropriate to better align the monetary policy framework with prevailing market realities,” he said.
Cardoso added that the adjustment was expected to strengthen policy transmission and restore the primacy of the MPR in guiding monetary policy.
“This would strengthen policy transmission and restore the MPR principle of monetary policy,” the governor said.
The committee also said the current economic environment remained supportive of the operational adjustment without undermining the ongoing disinflation process.
According to Cardoso, the MPC observed signs of increased resilience in the Nigerian economy, including moderating inflation, stronger external reserve buffers, improved external-sector fundamentals and increased investor confidence.
He said the committee also acknowledged improvements in the overall balance of the economy but maintained that monetary policy would remain focused on achieving price stability and improving the effectiveness of its transmission mechanism.
The latest decision means the CBN’s benchmark interest rate now stands at 23 percent, while the revised standing facilities corridor is expected to bring money market conditions into closer alignment with the policy rate.
The MPC reiterated that the operational changes should not be viewed as a shift in the underlying direction of monetary policy.
Cardoso said the measures formed part of the CBN’s broader efforts to strengthen its monetary policy implementation framework as Nigeria moves towards an inflation-targeting regime.
