The Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) held its 302nd meeting on Monday and Tuesday, September 22 and 23, 2025, to deliberate on recent global and domestic developments and the risks they pose to the country’s economic outlook. The MPC, which is the apex decision-making body of the CBN on monetary policy matters, consists of 12 members, including the governor of the Bank. Its meetings are held every two months, leaving just one more for the year.
At the end of the two-day session, the Committee voted unanimously reduced its benchmark interest rate, the Monetary Policy Rate (MPR), by 50 basis points to 27 percent from 27.50 percent. The move was aimed at boosting growth while sustaining the interest of foreign portfolio investors in the country.
The policy move marked the first interest rate cut in five years and signals a shift in the Bank’s approach toward stimulating economic activity.
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Announcing the decision at the end of the two-day meeting in Abuja, Olayemi Cardoso, the CBN governor explained that the committee’s choice to lower the MPR was influenced by five consecutive months of disinflation, projections of further moderation in inflation through the rest of 2025, and the need to sustain recovery momentum in the economy.
The committee, attended by 12 members, also delivered a set of complementary measures that balanced monetary easing with targeted liquidity controls. To support credit to the private sector, it reduced the Cash Reserve Requirement (CRR) for commercial banks to 45 percent from 50 percent, while retaining the CRR for merchant banks at 16 percent. At the same time, however, it introduced a 75 percent CRR on non-Treasury Single Account (TSA) public sector deposits to absorb excess liquidity from fiscal injections.
To help the public understand the implications of the MPC’s decisions, Ayodeji Ebo, managing director and chief business officer at Optimus by Afrinvest, explained some key monetary policy terms during his business and investment tips programme. According to him, the Monetary Policy Rate (MPR) is the benchmark interest rate at which the CBN lends to commercial banks and serves as the anchor for all other rates in the economy, making it a vital tool for managing inflation. The Cash Reserve Ratio (CRR) refers to the share of deposits that banks are required to keep with the CBN. With the CRR now set at 45 percent, for every N1,000 deposited in the bank, N450 must be retained with the CBN, leaving only N550 available for lending. The Liquidity Ratio (LR), maintained at 30 percent, is the proportion of liquid assets such as cash and government securities that banks must hold relative to their deposits, ensuring that they can meet withdrawal demands.
He further explained that the symmetric corridor defines the range around the MPR that determines the rates for the Standing Lending Facility (SLF) and the Standing Deposit Facility (SDF). With the corridor now fixed at +250/-250 basis points, banks can borrow from the CBN at 29.5 percent through the SLF or place their excess funds with the CBN at 24.5 percent via the SDF. This corridor affects overnight market rates, liquidity in the system, and short-term borrowing costs. Another measure introduced by the MPC was a 75 percent CRR on non-TSA public-sector deposits, which are funds held by government agencies outside the Treasury Single Account framework. By imposing such a high ratio, the CBN has ensured that banks cannot fully rely on these idle public funds for liquidity, thereby tightening money supply and discouraging speculative use of government deposits.
The big question, however, is: what do these measures mean for different players in the economy such as savers, borrowers, and investors?
For savers, the most immediate effect is on the interest rate paid on savings deposits. By regulation, banks are required to pay at least 30 percent of the MPR on naira savings accounts. With the MPR now reduced to 27 percent, the minimum savings rate also falls slightly to 8.1 percent, down from 8.25 percent. Although this looks marginal, it means lower income for households relying on savings deposits as a source of interest earnings. The actual benefit, however, depends on the conditions set by individual banks, such as limits on the number of withdrawals allowed in a month to qualify for interest. Savers who want to earn more from their funds may now have to consider alternatives such as fixed deposits, money-market funds, or fixed-income securities, while still keeping a portion in liquid savings for emergencies.
For fixed-income investors, the MPR cut reinforces the downward trend in yields already witnessed in recent auctions. Benchmark rates tend to guide returns on government securities, and with this cut, yields on instruments such as treasury bills and bonds are expected to decline further. This development makes fixed-income assets less attractive to risk-averse investors. Pension funds and institutional investors, in particular, may face compressed returns and will likely be prompted to diversify their portfolios into equities, infrastructure funds, or real assets. For retail investors, lower yields could mean that investment products offering higher risks but also potentially higher rewards may start to look more appealing.
Borrowers stand to benefit from the cut, though the effect will not be immediate. Loan rates are expected to reprice lower over time, although tight liquidity conditions arising from the high CRR could slow this process. As of July 2025, the maximum lending rate in Nigeria averaged 29.84 percent, while the prime lending rate was around 18.01 percent. The cut should gradually ease the debt-service burden of existing borrowers and lower the cost of new loans. By reducing default risks, the policy could also improve the overall quality of banks’ loan books. For the banks themselves, narrower lending margins may initially weigh on profitability, but this can be balanced out through stronger loan growth, reduced non-performing loans, and higher income from fees and other non-interest sources.
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The stock market is another potential beneficiary of the rate cut. Lower borrowing costs enhance the profitability of non-financial companies by reducing interest expenses, while the relatively weaker returns on fixed-income investments may shift investor appetite toward equities. For listed companies, particularly those outside the financial sector, this provides an opportunity to attract new capital and enjoy better valuations. For banks, the effect is more nuanced. While lower interest rates may pressure net interest income, higher loan volumes, improved asset quality, and increased opportunities in fee-based businesses could support their earnings. Dividend yields from equities may also become more attractive relative to fixed-income instruments in a low-rate environment, offering an additional incentive for investors.
The adjustment to the SLF and SDF rates ensures that interbank market rates remain aligned with the new MPR, enhancing the smooth transmission of monetary policy. By lowering the SLF rate to 29.5 percent from 30 percent and reducing the SDF rate to 24.5 percent from 25 percent, banks will now pay slightly less when borrowing liquidity from the CBN and earn marginally less when depositing their excess funds. This balance is intended to stabilise short-term market rates and improve monetary transmission.
One of the more significant measures is the imposition of the 75 percent CRR on non-TSA deposits. By effectively locking up three-quarters of such public-sector funds with the CBN, the Bank has curtailed banks’ ability to use these deposits for lending. For every N1,000 received in such deposits, only N250 is deployable. While this step is meant to strengthen monetary control, discourage speculative activities, and reduce banks’ over-reliance on government deposits, it also has the effect of tightening system liquidity further. This could blunt the speed with which the benefits of the rate cut are transmitted across the economy.
