By Salmanu Isah Darazo
The Central Bank of Nigeria (CBN) has taken a significant step toward balancing monetary tightening with economic recovery by reducing its benchmark interest rate to 27.00%, down from 27.50%. The decision came at the conclusion of the 302nd Monetary Policy Committee (MPC) meeting held on September 22–23, 2025.
According to Communiqué No. 159 issued after the meeting, the Committee justified the policy rate reduction on the basis of sustained disinflation, improving output growth, stable exchange rate conditions, and a positive outlook for the remainder of the year.
“The Committee’s decision was predicated on the sustained disinflation recorded in the past five months, projections of declining inflation for the rest of 2025 and the need to support economic recovery,” said CBN Governor Olayemi Cardoso.
Tight Liquidity Measures Introduced
While signaling a modest shift toward monetary easing, the MPC concurrently adopted tighter liquidity measures to contain inflationary risks from excess money in circulation.
Key among these are:
• Raising the Cash Reserve Ratio (CRR) for commercial banks to 45%
• Retaining CRR for merchant banks at 16%
• Introducing a new 75% CRR on non-TSA public sector deposits
• Adjusting the Standing Facilities corridor to ±250 basis points around the MPR
• Maintaining the Liquidity Ratio at 30%
The measures are designed to curb excess liquidity arising from higher fiscal releases due to improved government revenues.
Inflation Falls to 20.12% in August
Headline inflation eased further to 20.12% in August 2025, from 21.88% in July, marking the fifth consecutive month of disinflation. The drop was driven by declines in both food and core inflation. Month-on-month inflation also fell significantly to 0.74%, compared to 1.99% in July.
Food inflation, in particular, declined to 21.87%, largely due to reduced prices of staples such as rice, maize, millet, and guinea corn.
Strong Output Performance in Q2 2025
The Nigerian economy recorded 4.23% real GDP growth in the second quarter of 2025, up from 3.13% in Q1. A significant contributor to this growth was the oil sector, which rebounded with 20.46% growth during the quarter, compared to just 1.87% previously.
The MPC commended the Federal Government’s improved security operations in the oil-producing regions and called for sustained efforts to support both crude oil output and food production.
Robust External Sector and FX Stability
Nigeria’s external reserves rose to $43.05 billion as of September 11, 2025, from $40.51 billion at the end of July. The current account surplus also improved to $5.28 billion in Q2, up from $2.85 billion in Q1.
The MPC described the foreign exchange market as stable and emphasized the need to sustain policies that enhance FX liquidity and investor confidence.
Banking Sector Resilient Amid Recapitalization
The CBN reported continued stability in the banking system, with most institutions maintaining financial soundness within regulatory thresholds. As of September, 14 banks had met the new minimum capital requirements, with the recapitalization exercise proceeding as planned.
The Committee also highlighted the successful termination of pandemic-era forbearance and waivers on single obligor limits, noting that the measures have enhanced transparency and risk management in the sector.
Global Economic Backdrop: Moderate Recovery, Fragile Stability
On the international front, the MPC acknowledged ongoing disinflation in advanced economies and a moderate global recovery. However, it warned of downside risks from geopolitical tensions and supply chain disruptions, which could impact global demand and commodity prices.
Policy Outlook
The MPC anticipates a continued disinflation trend, supported by:
• Harvest-season food supply
• FX market stability
• Fuel price moderation
• Lagged effects of past rate hikes
The Committee reiterated its commitment to remaining data-driven and proactive, with its next meeting scheduled for November 24–25, 2025.
Conclusion
The September MPC decisions reflect a cautious, but meaningful shift in monetary strategy. By lowering the policy rate while simultaneously tightening liquidity, the CBN aims to encourage growth without compromising hard-won macroeconomic stability.
Whether this fine balance holds will depend on sustained fiscal prudence, effective security efforts in oil regions, and external resilience amid global uncertainties.
