Mixed reactions yesterday trailed the Central Bank of Nigeria, CBN’s cut on interest rate by three per cent, as the Monetary Policy Rate, MPR, was reduced from 26.5 per cent to 23 per cent.
The governor of the apex bank, Mr. Olayemi Cardoso, who announced the new rate at the end of the 307th Monetary Policy Committee, MPC, meeting, in Abuja, described the decision as resetting it to meet the current financial market realities.
According to Cardoso, the committee noted that the observed divergence between the MPR and the prevailing market rates had weakened the effectiveness of monetary policy transmission. The committee therefore considered a reset of the MPR and recalibration of the corridor appropriate to better align the monetary policy implementation framework with market realities.
The committee also recalibrated the standing facilities corridor to plus 50 minus 300 basis points around the MPR, while retaining the Cash Reserve Requirement for deposit money banks at 45 per cent, merchant banks at 16 per cent and non-Treasury Single Account public sector deposits at 75 per cent.
Meanwhile, economists and capital market experts have lauded the decision, describing the 350-basis-point reduction as a balanced decision that could strengthen banking system resilience and support economic growth. They said the decision effectively reduced the price of money and could discourage banks from parking excess liquidity with the apex bank and encourage lending to productive sectors.
However, Organised Private Sector leaders demanded that commercial banks pass on the benefits of the cut to borrowers, warning that the reduction alone would not solve the country’s financing challenge as lending rates remain above 30 per cent for many businesses.
Cardoso insisted that the decision should not be interpreted as a shift to monetary easing, describing it instead as an operational adjustment. He said the bank would stay on a restrictive course for as long as necessary to sustain disinflation, noting that headline inflation eased for the third consecutive month to 15.39 per cent in August.
