CBN cuts interest rate to 23% in biggest rate drop since 2006

The Central Bank of Nigeria (CBN) has delivered its largest interest rate reduction in two decades, slashing the Monetary Policy Rate (MPR) by 350 basis points from 26.5 per cent to 23 per cent.

Announcing the decision on Tuesday following the Monetary Policy Committee’s (MPC) 307th meeting in Abuja, CBN Governor Yemi Cardoso described the move as an operational “reset” designed to align official policy rates with broader money market conditions amid easing inflation.

The surprise rate cut marks the second reduction of the year and brings the country’s benchmark borrowing rate to its lowest level since February 2024.

Explaining the rationale behind the 350-basis-point reduction, Cardoso noted that the apex bank sought to resolve a growing disconnect between the official policy rate and effective interbank market rates.

“There is a clear disconnect between CBN’s Monetary Policy Rate (MPR) and effective market rates,” Cardoso stated. “The MPR was 26.5 per cent while the interbank rate stood around 22 per cent, same as the standing deposit facility rate. Thus, the MPR became the de jure rate with the SDF rate as the de facto.”

“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,” the governor added.

Cardoso highlighted that simultaneous improvements across GDP growth—which reached 4.43 per cent in the second quarter of 2026—and moderating inflation provided sufficient headroom for the policy recalibration.

“The simultaneous moderation across major inflation components provides stronger evidence that underlying price pressures are easing rather than reflecting temporary movements in individual components,” Cardoso said.

The central bank’s decision follows data from the National Bureau of Statistics (NBS) showing that Nigeria’s headline inflation rate eased for the third consecutive month to 15.39 per cent in August 2026, down from 15.43 per cent in July. Month-on-month price increases also registered a sharp deceleration, dropping to 0.71 per cent in August.

Alongside the rate cut, the committee adjusted the asymmetric corridor around the MPR to +50 and -300 basis points while leaving key liquidity safeguards unchanged:

• Deposit Money Banks CRR: Maintained at 45 per cent
• Merchant Banks CRR: Maintained at 16 per cent
• Liquidity Ratio: Retained at 30 per cent

By narrowing the gap between official benchmarks and real-time bank lending conditions, the central bank aims to improve credit transmission to the private sector while anchoring long-term inflation expectations. Financial analysts expect the lower benchmark rate to offer welcome relief to corporate borrowers navigating borrowing costs across Nigeria’s real economy.