CBN reduces MPR by 350bps to 23% in major monetary policy shift

The Central Bank of Nigeria (CBN) has cut its Monetary Policy Rate (MPR) by 350 basis points to 23 per cent, marking a major shift in its monetary policy stance as inflation continues to moderate and pressure mounts for lower borrowing costs.

The decision was taken at the 307th meeting of the Monetary Policy Committee (MPC) on Tuesday, September 22, 2026, reducing the benchmark rate from 26.5 per cent. The new rate is the lowest since February 2024.

The MPC, however, retained the Cash Reserve Requirement (CRR) for Deposit Money Banks at 45 per cent and that of Merchant Banks at 16 per cent. It also maintained the 75 per cent CRR applicable to non-Treasury Single Account (TSA) public-sector deposits.

The committee equally recalibrated the Standing Facilities Corridor to +50 and -300 basis points around the new 23 per cent MPR.

The rate cut comes against the backdrop of a sustained moderation in headline inflation. Nigeria’s headline inflation fell to 15.39 per cent in August from 15.43 per cent in July, while the naira has maintained relative stability in the foreign exchange market.

Analysts said the reduction could gradually improve credit conditions for businesses and households, although the transmission to actual lending rates may take time.

Bank of America had, ahead of the MPC meeting, identified moderating inflation and relative naira stability as factors creating room for the CBN to ease monetary policy.

The decision also addresses pressure from businesses and households for lower interest rates. The CBN’s August 2026 Inflation Expectations Survey showed that 60.9 per cent of respondents wanted interest rates reduced, while 27.4 per cent preferred the rates to remain unchanged.

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However, analysts had also warned that the inflation outlook remained exposed to renewed energy-price pressures.

United Capital Research had argued before the MPC meeting that rising crude oil and Premium Motor Spirit (PMS) prices could complicate the inflation outlook.

The research firm noted that although inflation had slowed, the outlook remained uncertain and a sustained disinflation trend would be necessary to justify further monetary easing.

The decision to leave the CRR unchanged means the immediate liquidity impact on banks will come primarily through the lower policy rate rather than a reduction in mandatory reserves.

A 45 per cent CRR for Deposit Money Banks means a substantial share of customer deposits remains sterilised with the CBN rather than immediately available for conventional lending. The CBN has previously explained that higher reserve requirements reduce the funds available to banks for credit creation, while lower requirements can increase lending capacity.

Consequently, while the lower MPR could reduce the benchmark cost of funds and eventually support lower lending rates, the unchanged CRR may limit the speed and magnitude of the liquidity boost available to banks.

The new Standing Facilities Corridor also narrows the lower side of the corridor to 300 basis points below the MPR, compared with the previous -450 basis points. This adjustment is expected to influence overnight money-market pricing and improve the transmission of monetary policy to financial-market rates.

For the real sector, the critical issue will be whether commercial banks translate the policy-rate reduction into lower lending costs.

The CBN’s policy transmission mechanism works through interest-rate and credit channels, meaning changes in the benchmark rate can eventually influence borrowing costs, investment, consumption and economic activity.

The latest decision therefore creates scope for a gradual reduction in funding costs, but analysts caution that the pass-through will depend on banks’ funding structures, liquidity conditions, credit risks and broader macroeconomic stability.

With inflation still significantly above the CBN’s preferred medium-term range and energy prices presenting an upside risk, the MPC’s latest action leaves policymakers balancing two competing objectives: supporting economic activity through lower borrowing costs while ensuring that the recent moderation in inflation is sustained.