Inflation decline, fx stability behind CBN’s rates cut

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) reduced the benchmark interest rate by 50 basis points (bps), from 27.5 per cent to 27 per cent. At the end of its 302nd meeting held on September 22 and 23, 2025, the committee voted unanimously to ease monetary policy in a bid […]

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) reduced the benchmark interest rate by 50 basis points (bps), from 27.5 per cent to 27 per cent.

At the end of its 302nd meeting held on September 22 and 23, 2025, the committee voted unanimously to ease monetary policy in a bid to balance price stability with growth.

Latest data released by the National Bureau of Statistics revealed that Nigeria’s real gross domestic product surged by 4.23% in the second quarter of the year. Inflation has also been on the decline, and the naira has become less volatile.

Consequently, while briefing the press, the Central Bank governor, Olayemi Cardoso noted that all 12 members of the CBN committee agreed to cut the Monetary Policy Rate (MPR) by 50 bps to 27.00% from 27.50%, suggesting the authority’s satisfaction with decelerating headline inflation.

The decision to cut rates was anchored on the sustained moderation in headline inflation, which eased to 20.12% in August 2025, alongside the need to support economic growth momentum.

The decision was also supported by the stability of the Nigerian naira in the foreign exchange market, plus improvement in other related macro indicators – including GDP growth.

 

GDP growth

Nigeria’s economy improved in the second quarter of 2025, expanding by 4.23 per cent year-on-year, a clear improvement from 3.48 per cent in Q2 2024 and 3.13 per cent in Q1 2025.

Daily Trust reports that the National Bureau of Statistics revealed this in its Q2 2025 GDP Report on Monday.

Also further checks showed that five activities contributed the most to Nigeria’s real GDP in the quarter.

The NBS stated that the agriculture sector accounted for roughly 26.17 per cent of real GDP, while non-oil industries continued to dominate overall output in Q2 2025.

Trade contributed 18.28 per cent of real GDP, trade remained the single largest contributor in Q2 2025. The sector includes wholesale and retail.

Crop production also recorded 17.80 per cent. Crop farming was the dominant sub-activity within agriculture and the second-largest contributor overall.

Real estate services also contributed to 12.80 per cent as the sector continues  to make a large contribution to output.

Also Telecommunications and information services showed 11.18 per cent growth. The information and communications complex (telecoms, ICT) was a major non-oil engine.

 

Inflation

The CBN governor explained that the decision was underpinned by “sustained disinflation recorded in the past five months, projections of declining inflation for the rest of 2025, and the need to support economic recovery efforts.”

“The MPC noted that headline inflation slowed to 20.12 per cent in August from 21.88 per cent in July. Food inflation fell to 21.87 per cent from 22.74 per cent, while core inflation eased to 20.33 per cent from 21.33 per cent.

On a month-to-month basis, inflation dropped sharply to 0.74 per cent in August compared with 1.99 per cent in July.

“This reduction is the first under my leadership and the first in five years,” Cardoso noted. The last time Nigeria cut its policy rate was in September 2020, when it dropped from 12.5 per cent to 11.5 per cent.

Across Africa, a similar trend is unfolding. Just last week, Ghana slashed its policy rate by 350 basis points to 21.5 per cent, while Kenya reduced its benchmark to 9.5 per cent in August. Nigeria’s cut, however, still leaves it with one of the highest rates on the continent,” he explained 

Further checks by Daily Trust show that inflation has been on the decline with prices of some staples food like rice and maize also on the decline 

 

Stability of Naira, fx access

Daily Trust had earlier reported that the National Bureau of Statistics in its latest published report tagged  “Capital Importation Report,” showed  that Nigeria attracted $5.6bn in capital inflows in the first quarter of 2025, signalling an increase in foreign investor confidence 

The report shows a 67.12 per cent jump from the $3.4bn recorded in Q1 2024 and a 10.86 per cent rise over Q4 2024 figures

The report also suggested that the reforms brought by the CBN in ending multiple exchange rates and allowing greater flexibility in the forex market, as well as creating an environment where investors could access FX and repatriate profits.

The NBS figures show that Portfolio Investment dominated inflows, accounting for $5.2bn (92.25 per cent). Other investments followed with $311.17m (5.52 per cent). Foreign Direct Investment was the smallest at $126.29m (2.24 per cent).

Sectorally, the banking industry was the biggest winner, attracting $3.1bn (55.44 per cent) of inflows, followed by the financing sector at $2.09bn (37.18 per cent) and manufacturing at $129.92m (2.3 per cent). Geographically, the United Kingdom led the pack, providing $3.68bn or 65.26 per cent of total inflows.

Speaking on efforts to ease access to forex, the CBN governor during the MPC briefing said, “I must tell you that one of the things you can expect from us going forward is improving the whole issue of ease of access to foreign exchange for everybody.

“And for example, I give you the example that I know has positively impacted so many and that is the whole issue of access to foreign exchange. Now when you travel, you can use your naira card.

And this is not a joke. It works. The banks have all on the back of the positive reforms, come out and are bringing out new products and ensuring that they get to their customers.”

According to the CBN governor, the stability brought about by the Bank’s reforms will be sustained.

 

Other resolutions of MPC

Speaking on other resolutions of the MPC, the governors stressed the need for complementary fiscal measures, noting that while monetary easing is a welcome development, fiscal policy must play a complementary role to fully unlock growth potential.

“The committee’s decision to lower the monetary policy rate 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 efforts,” Cardoso said.

Cardoso explained that the introduction of new measures was aimed at strengthening monetary control, improving liquidity management, and reinforcing the TSA regime.

He noted that the country’s gross external reserves rose to $43.05 billion as of September 11, thus providing an import cover of 8.28 months.

He attributed the rise to improved forex inflows, which underlined increasing investor confidence in the national economic outlook.

“It has been on an upward trajectory. And honestly, as far as I can see, the measures that we’ve used to get to where we’ve got to and to be able to talk about a foreign reserves position that was the highest since 2019, we will continue to deploy,” Cardoso said in relation to the forex reserves.

He pointed to initiatives, such as the Non-Resident BVN (NRBVN) scheme, which has boosted foreign inflows.

He said: “When we started that journey, it was basically $200 million per month. We doubled it in no time, and now going into next year, we are saying we are going to attain $1 billion. And we will do it”.

Responding to questions about how monetary and fiscal authorities plan to sustain the disinflationary trend in the run-up to the 2026 pre-election year, Cardoso said both institutions remain committed to working together to deliver single-digit inflation.

“Our goal is for single digit. That’s our goal. And that is something that we are resolute on. We will not stop until we get there,” Cardoso said.

Cardoso stressed that the MPC’s approach would remain data-driven and proactive in responding to domestic and external risks.

He emphasised the importance of exchange rate stability and fiscal discipline in sustaining recent gains.

 

Foreign Exchange Reforms, Inflation Control Mark Cardoso’s Two-Year Review – CPPE

Meanwhile, the Centre for the Promotion of Private Enterprise (CPPE) has reviewed the two-year tenure of Mr. Yemi Cardoso as Governor of the Central Bank of Nigeria (CBN), highlighting major gains in foreign exchange reform, inflation management, and governance, while raising concerns over the impact of tight monetary policies on credit access and private investment.

In its assessment released on Sunday, CPPE said the Cardoso-led CBN had introduced “comprehensive reforms aimed at restoring confidence, strengthening governance, and repositioning the financial system to support inclusive and sustainable economic growth.”

According to the report, one of the most notable milestones was the liberalization and unification of the foreign exchange market, which eliminated multiple FX windows, reduced arbitrage opportunities, and improved liquidity. The reforms, CPPE noted, also enhanced credibility and market efficiency.

The think-tank further commended progress in institutional strengthening, citing improved corporate governance, enhanced operational independence, and curtailment of unrestrained monetary financing. On banking sector stability, it pointed to recapitalization measures and stronger regulatory frameworks that bolstered confidence in the financial system.

CPPE also credited the CBN’s policy mix—ranging from interest rate hikes to liquidity management—for contributing to a recent slowdown in inflation and improved macroeconomic stability.

Despite these achievements, CPPE expressed worry about what it described as “highly restrictive” monetary policies. With the Monetary Policy Rate at 27.5 percent and the Cash Reserve Ratio at 50 percent, the group warned that elevated lending costs were constraining access to credit for manufacturers, SMEs, agriculture, and real estate.

It also noted the crowding-out risk posed by government securities, as investors gravitate toward safer high-yield instruments at the expense of private sector financing.

The group recommended that the CBN gradually ease monetary tightening as inflation moderates and complement monetary measures with supply-side strategies to tackle structural inflation.

It also urged the apex bank to develop credit guarantee schemes and concessionary financing for SMEs and critical sectors, while deepening the domestic bond market to mobilize long-term capital for infrastructure projects.

Summarizing its review, CPPE’s Chief Executive Officer, Dr. Muda Yusuf, said Mr. Cardoso’s leadership had delivered “significant transformation to Nigeria’s financial system, with gains in transparency, credibility, and stability.”

He added that the next phase of reforms should focus on balancing price stability with economic growth, addressing financing gaps, and sustaining governance improvements to unlock the full potential of the financial sector in driving inclusive development.