The Central Bank of Nigeria has reduced the Monetary Policy Rate (MPR) from 26.5 percent to 23 percent, marking one of the significant monetary policy shifts in recent years. This 350-basis-point cut lowers the benchmark cost of money, but its impact on the economy will depend on how quickly it passes through banks, financial markets, and businesses. The Monetary Policy Committee also retained the Cash Reserve Ratio for deposit money banks at 45 percent and adjusted the standing facilities corridor.
The rate cut could lower funding costs, but borrowers may have to wait before cheaper credit reaches them. T-bill and bond yields have already fallen sharply, raising questions about returns for fixed-income investors as monetary conditions ease. The average maximum lending rate fell to 33.16 percent in June 2026 from 34.78 percent in May, according to CBN data. However, it was still well above the 29.51 percent recorded in June 2025.
The 350-basis-point cut creates room for lending rates to fall, but the speed and size of the pass-through will depend on several factors, including banks' cost of funds, credit risk, operating costs, liquidity conditions, and expected returns. Fixed-income investors have already seen yields decline ahead of the latest MPC decision. The 364-day Treasury bill stop rate fell to 15.89 percent on September 23.
FGN bond yields have also moved lower, with selected benchmark bonds trading around 15.6–16 percent on September 25, compared with yields above 17 percent earlier in September. This means investors buying new fixed-income instruments could face lower returns if yields continue adjusting downward. For existing bondholders, however, falling yields can increase the market value of securities already held.
Banks are particularly exposed to the rate cycle because interest income and funding costs are central to their earnings. First HoldCo’s H1 2026 results show interest income fell 2.7 percent year-on-year to ₦1.40 trillion, while net interest income declined 2.8 percent to ₦879.1 billion. A sustained decline in market rates could put pressure on yields earned on loans and investments.
The rate cut could accelerate private-sector credit expansion if banks become more willing to lend and borrowers find financing more affordable. Private-sector credit increased to ₦83.26 trillion in June 2026 from ₦81.04 trillion in May, representing a monthly increase of ₦2.22 trillion and roughly 9 percent growth year-on-year. More recent data put private-sector credit at ₦84.55 trillion in August.
For manufacturers and other businesses, cheaper financing can reduce the cost of working capital, inventory financing, and equipment purchases. It could also make projects that were previously too expensive to finance more viable. However, the transmission is unlikely to be immediate, and companies will still compare the cost of borrowing with expected returns from expansion.
Key points
- The CBN's 350-basis-point rate cut could lower funding costs and increase borrowing.
- The impact of the rate cut on lending rates will depend on several factors, including banks' cost of funds and credit risk.
- The rate cut could make equities relatively more attractive to some investors seeking higher returns.
