…Retains interest rate at 27% to sustain inflation gains
The Central Bank of Nigeria (CBN) may not have cut interest rates as widely expected, but it has taken a decisive step to discourage commercial banks from parking excess liquidity in its Standing Deposit Facility (SDF) by reducing the potential returns the banks earn on such idle funds, thereby incentivising lending to the real economy.
The apex bank also raised the rate of borrowing from its window, called the Standing Lending Facility (SLF), to reduce the incentive for commercial banks to borrow from the CBN.
At the end of the two-day Monetary Policy Committee (MPC) meeting held on Tuesday in Abuja, the apex bank adjusted the asymmetric corridor around the Monetary Policy Rate (MPR) to +50 and –450 basis points, from the previous +250/–250 basis points maintained since September 2025.
Read also: Cardoso: CBN unable to restart interventions as ₦4.69trn remains unpaid
This move significantly reduces the incentive for banks to simply lodge surplus cash with the CBN, rather than channel funds into productive lending to businesses and households.
The MPC, by a majority vote, retained the benchmark interest rate at 27 percent, a stance aimed at sustaining the gains already achieved in the fight against inflation and ensuring continued stability.
Olayemi Cardoso, governor of the CBN, announcing the outcome of the meeting, said the committee also voted to maintain other major monetary indicators: the Cash Reserve Ratio (CRR) for Deposit Money Banks remains at 45 percent, while Merchant Banks’ CRR stays at 16 percent. The CRR on Non-TSA public sector deposits was kept at 75 percent, while the Liquidity Ratio continues at 30 percent.
Cardoso stressed that the overall policy direction remains focused on tightening liquidity conditions and ensuring that inflation continues to moderate.
Cautious optimism
Reacting to the policy shift, Ayodeji Ebo, managing director and Chief Business Officer at Optimus by Afrinvest, said keeping the MPR unchanged at 27 percent signals the CBN’s sustained caution around short-term inflation risks, particularly following the rise in October’s month-on-month inflation.
He said the shift from a symmetric corridor (+250bps/–250bps) to a more asymmetric structure (+50bps/–450bps) sends a strong policy message. By widening the lower band to –450bps, the CBN lowers the effective return on idle funds placed at its deposit window (now 22.5 percent), discouraging banks from relying on passive income from the CBN.
At the same time, raising the upper band to +50bps increases the cost of borrowing from the CBN’s lending window (now 27.5 percent). This encourages banks to seek liquidity through the interbank market or deploy funds into the real economy, rather than depend on the CBN for short-term funding.
Overall, Ebo said, “This corridor adjustment is designed to minimise arbitrage, encourage more credit flow to productive sectors, and maintain tighter liquidity conditions in support of ongoing inflation-control efforts.”
In her reaction, Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, said that although the MPR remains unchanged, the real development is Nigeria’s return to an asymmetric corridor of +50 and –450 basis points from the previous symmetric +250 and –250 basis points.
She noted that this shift allows the SDF rate to drop to 22.5 percent from 24.5 percent, establishing a much lower floor for interest rates.
She described this as a significant and effective easing of monetary conditions, reflecting confidence in the trajectory of declining inflation and improvement in foreign exchange market stability.
Khan added that previous policy signals suggested the CBN was moving toward improved monetary policy transmission with a symmetric corridor, but the new decision points to a more pressing need to reduce the cost of banks placing large overnight balances with the apex bank.
Despite the change, she emphasised that the CBN has managed to pursue this without undermining FX stability, with the new corridor set at 27.5 percent and 22.5 percent, compared to the previous 29.5 percent and 24.5 percent, a 200-basis-point reduction on both ends.
Read also: The Tightening Trap: Can CBN’s MPR decision avoid slowing the recovery?
Commercial banks have increasingly placed huge sums with the CBN, rather than expand lending to the private sector. Data from the apex bank shows that deposits placed with the CBN peaked at N6.08 trillion on October 2, 2025, highlighting banks’ preference for low-risk returns despite the real economy’s struggle to access affordable credit.
Commenting on the development, Charlie Robertson, author of ‘The Time Travelling Economist,’ described the new CBN stance as “an effective easing of monetary policy,” consistent with the declining headline inflation. He said that as long as inflation continues on a downward path, this should support expectations of a lending rebound in 2026 and 2027.
Lukman Otunuga, market analyst at FXTM, added that further signs of moderating price pressures could encourage the CBN to begin interest rate cuts in 2026. The latest policy stance, he said, reinforces the bank’s focus on managing inflation while simultaneously nudging the financial system toward stronger credit expansion and real-sector growth.
Funmi Adebowale, head of Research at Parthian Securities, said the CBN’s decision to hold the MPR at 27 percent reinforces its tight monetary stance aimed at consolidating the ongoing disinflation trend.
According to her, the adjustment of the asymmetric corridor to +50/–450 bps provides the apex bank with additional room to fine-tune system liquidity.
On the macroeconomic front, she said elevated policy rates imply that borrowing costs will remain restrictive, potentially keeping private-sector credit growth subdued.
For the banking industry, Adebowale said the new corridor means DMBs will access the CBN’s lending window at a slightly higher cost (27.5 percent) and earn significantly less on placements (22.5 percent). This effectively tightens liquidity and compresses margins, potentially nudging banks to channel more funds towards private-sector lending in search of higher returns.
