CBN Cuts Benchmark Rate by 3.5 Points
Nigeria’s central bank cut its policy rate by 3.5 percentage points to 23 percent on Tuesday, the steepest easing of Yemi Cardoso’s three-year term, and framed the move as an attempt to make the official rate mean something in the market again rather than a declaration that inflation is beaten.
The Monetary Policy Committee also reset the standing-facilities corridor to 50 basis points above and 300 below the new Monetary Policy Rate, pulling the overnight window well off the near-30 percent levels of the last tightening cycle. Cash-reserve ratios were left unchanged: 45 percent for deposit-money banks, 16 percent for merchant banks and 75 percent on public-sector deposits that sit outside the Treasury Single Account. The mix is deliberate. Cardoso wants cheaper headline credit without letting liquidity run. Whether loan officers follow the signal is the test manufacturers have heard before.
He called the package an “operational reset,” not a turn to easy money. The old 26.5 percent MPR had drifted away from money-market rates near 20 percent and from inflation the Centre for the Promotion of Private Enterprise puts around 15.4 percent, so the policy rate had stopped being the price that banks actually used. Cardoso, marking three years in the job, said the bank had first had to recover a core mandate after multiple exchange rates, a collapsing naira and a Ways and Means stock he put at about ₦23.7 trillion plus more than ₦10 trillion in interventions. Gross reserves, he said, were $55.25 billion on 18 September – an 18-year high, about 11.3 months of imports. The balance of payments was in surplus by $3.51 billion in the second quarter, up from $2.38 billion in the first; the current account surplus rose 67.92 percent to $7.54 billion. Remittances, he argued, had become a buffer. The naira’s slide after liberalisation has been cut to about 65 percent, in the bank’s telling, after two calmer years.
That comfort is now being tested from the other direction. The Federal Reserve and the European Central Bank each raised rates by 25 basis points this month as energy costs fed inflation. Nigeria is cutting while those markets tighten. Analysts warn that the interest-rate gap that pulled in portfolio money could narrow, inviting outflows or a weaker naira unless the reserve pile is used. Muda Yusuf of CPPE called the cut timely and larger than expected, a realignment with market rates more than a binge, and useful for factories, farms, building and logistics – if banks pass it on. Cheaper government borrowing would follow. Ifeanyi Ubah of VNL Capital said the unchanged cash-reserve ratio showed the committee was easing the price of money without opening the tap. Abiodun Ogunniyi expected cash to rotate from bonds into equities; consumer, industrial and oil-and-gas names could benefit, banks less cleanly, as loan growth trades off against thinner interest margins.
Cardoso’s research staff have already linked high lending rates to weaker manufacturing. Working capital, machines and longer projects get easier only if the 23 percent figure shows up in term sheets, not just in the communiqué. Inflation, the exchange rate and political noise around the next election will decide whether this is a reset or the start of a leak. For now the bank has chosen a lower official price of money and kept its hand on the reserves.
