Economist and banking expert Dr Tope Fasoranti has described the Central Bank of Nigeria’s (CBN) decision to reduce the Monetary Policy Rate (MPR) from 26.5 per cent to 23 per cent as a timely move that offers measured relief to the economy without abandoning the fight against inflation.
Fasoranti said the 350-basis-point reduction announced on September 22, 2026, was a carefully calibrated adjustment whose significance went beyond the headline figure.
He argued that the decision reflected a balance between sustaining recent gains in price stability and improving access to credit to support economic growth.
According to the economist, the effective adjustment in market interest rates was smaller than the headline reduction, suggesting that the CBN had acted cautiously.
Under the previous policy corridor of plus 50 and minus 450 basis points, the Standing Deposit Facility (SDF) rate stood at 22 per cent. The revised corridor of plus 50 and minus 300 basis points reduced the SDF rate to 20 per cent, a decline of 200 basis points.
Fasoranti noted that overnight market rates had already been trading close to the previous corridor floor because of surplus liquidity in the banking system.
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Citing Cordros Research, he said the overnight rate closed at 20.77 per cent in the week to September 25, 2026.
He argued that the remaining part of the headline rate cut largely aligned the CBN’s official policy signal with prevailing market conditions.
The economist also maintained that Nigeria’s real interest rates remained elevated despite the latest reduction.
He explained that when inflation declines while nominal interest rates remain unchanged, real interest rates rise, effectively tightening monetary conditions even without further increases in the policy rate.
In August 2025, the MPR stood at 27.5 per cent against headline inflation of 23.14 per cent, producing a backward-looking real rate of about 4.4 percentage points.
By comparison, the new MPR of 23 per cent against August 2026 inflation of 15.39 per cent translates to a real rate of approximately 7.6 percentage points.
The same trend is evident in the effective policy rate. Nigeria’s SDF rate of 20 per cent now stands about 4.6 percentage points above inflation, compared with a margin of approximately 3.4 points in August 2025.
Fasoranti said the figures support the CBN’s description of the decision as an operational recalibration rather than a fundamental change in its monetary policy stance.
He also assessed the new rate against the Taylor rule, a standard monetary policy benchmark that considers inflation, the neutral real interest rate and economic output relative to potential.
Using an assumed neutral real rate of 2 to 4 per cent, an inflation target of 6 to 9 per cent and output broadly around potential, he estimated an illustrative policy-rate range of 17 to 24 per cent.
The new MPR of 23 per cent falls within that range, towards its cautious end, reinforcing his view that the CBN is easing monetary conditions without moving prematurely.
Comparisons with other African economies also suggest that Nigeria’s policy stance remains restrictive in real terms.
Using August inflation figures, Fasoranti put Kenya’s real policy rate at about two percentage points and South Africa’s at close to three points. Egypt’s stood at approximately five points, while Ghana’s was around nine points.
He attributed Ghana’s higher real rate to inflation declining faster than its policy rate was adjusted, describing it as another example of passive monetary tightening.
Fasoranti said the timing of Nigeria’s rate reduction was also supported by improvements in core inflation, which he described as an important indicator of underlying price pressures.
National Bureau of Statistics (NBS) data showed that core inflation declined for three consecutive months, falling from 16.82 per cent in May to 13.29 per cent in August. Core prices also recorded a slight monthly decline in August.
The CBN’s September Inflation Expectations Survey, published after the rate decision, provided another encouraging signal. The expectations index stood at 25.1 points, below the 43.1 points recorded for current inflation perceptions.
According to Fasoranti, the distinction matters because monetary policy operates with long and variable delays, requiring policymakers to consider the likely direction of inflation rather than relying solely on past figures.
The credit market also provides a case for carefully measured easing.
CBN statistics showed that private-sector credit rose for a third consecutive month in August to N84.55 trillion. However, annual nominal growth of 11.4 per cent remained below headline inflation, indicating that private-sector credit was still contracting in real terms.
With real Gross Domestic Product (GDP) growing by 4.43 per cent, Fasoranti argued that the rate reduction could support a recovery in lending. Lower interest rates on new Treasury bills could also gradually reduce government borrowing costs as maturing debt is refinanced.
He explained that lending rates reflect several factors, including the policy rate, term premiums, credit risk and regulatory costs. While the CBN’s decision directly affects the policy-rate component, lower borrowing costs could also improve the financial position of businesses and households, reducing default risks and potentially lowering the premiums banks charge borrowers.
Fasoranti described this process as the financial accelerator, through which improving economic conditions and lower borrowing costs can reinforce each other.
However, he said the CBN’s decision to retain the Cash Reserve Requirement (CRR) for deposit money banks at 45 per cent remained significant for the cost of credit.
Under this requirement, banks must hold a substantial share of their deposits as reserves rather than making them available for lending. Fasoranti estimated that, with a CRR of 45 per cent, every percentage-point decline in deposit rates could reduce the funding cost of a deposit-funded loan by about 1.8 percentage points, assuming other costs remain unchanged.
He stressed, however, that the actual reduction in lending rates would depend on banks’ funding structures and pricing decisions.
The economist argued that maintaining the high reserve requirement while adjusting the policy rate was a prudent sequence, as releasing additional liquidity into an already liquid banking system could push market rates towards the corridor floor and weaken the CBN’s policy signal.
He added that a gradual normalisation of reserve requirements could become a natural next step once disinflation was firmly established.
Fasoranti also described the rate adjustment as an investment in the credibility of Nigeria’s evolving inflation-targeting framework, which requires a clear policy rate capable of guiding market expectations and financial conditions.
He said sustaining that credibility would depend on continued progress towards price stability, supported by steady food supplies, exchange-rate stability and the effective transmission of lower policy rates to lending.
Fasoranti concluded that the September rate cut was justified by the evidence, with the effective adjustment remaining moderate, real rates still elevated and the new policy rate within the range suggested by a standard monetary policy benchmark.
He argued that the decision offers the Nigerian economy measured relief as policymakers seek to translate improved price stability into stronger credit growth and sustained economic expansion.
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