CBN Cuts MPR to 27% as MPC Flags Disinflation, Growth Gains and Liquidity Risks

The Central Bank of Nigeria (CBN) has reduced the Monetary Policy Rate (MPR) from 27.5 percent to 27 percent, marking the first rate cut in more than a year and signaling cautious optimism about Nig

eria’s macroeconomic direction.

The decision, announced at the 159th Monetary Policy Committee (MPC) meeting held on September 23, 2025, reflects confidence in the country’s improving economic fundamentals and sustained progress in fighting inflation.

Why the Rate Cut Matters

For months, Nigeria has endured elevated borrowing costs as the CBN pursued aggressive tightening to curb inflation. But with inflation easing for five consecutive months, the bank judged the time right to ease slightly.

• Headline inflation slowed to 20.12 percent in August, down from 21.88 percent in July.
• Food inflation dipped to 21.87 percent, while core inflation declined to 20.33 percent.

The MPC believes this downward trend will continue, creating space to stimulate credit and investment without stoking runaway prices.

Policy Adjustments in Detail

Beyond the MPR cut, the CBN unveiled several policy adjustments to balance growth and stability:

• Cash Reserve Ratio (CRR): Reduced for deposit money banks to 45 percent (from 50 percent), while remaining at 16 percent for merchant banks. A new 75 percent CRR on non-TSA public sector deposits was introduced to mop up excess liquidity from fiscal injections.
• Liquidity Ratio (LR): Held steady at 30 percent to maintain banks’ liquid asset buffers.
• Asymmetric Corridor: Adjusted to +250 / –250 basis points around the MPR, creating a lending facility at 29.5 percent and a deposit facility at 24.5 percent.

According to the MPC, these measures are designed to ease credit conditions for businesses and households while ensuring that inflationary risks remain contained.

Economic Takeaways from the MPC Meeting

1. Growth Momentum: GDP expanded by 4.23 percent in Q2 2025, up from 3.13 percent in Q1. Oil output surged over 20 percent, while agriculture and services provided steady contributions.
2. External Stability: Gross reserves stood at US$43.05 billion, equal to 8.3 months of import cover. The current account surplus grew to US$5.28 billion in Q2.
3. Banking Sector Strength: Fourteen banks have already met the new recapitalization requirements, while key financial soundness indicators remain within regulatory thresholds. The removal of waivers on single obligor limits is expected to boost transparency.
4. Liquidity Management: The committee flagged excess liquidity, largely from fiscal revenue releases, as a major risk to inflation control—hence the introduction of the 75 percent CRR on non-TSA public sector deposits.
5. Forward Outlook: The MPC emphasized that its priority remains to anchor inflation expectations while supporting growth and maintaining financial stability.

Broader Implications

The MPR cut offers potential relief for businesses and households struggling with high credit costs. Sectors like real estate, agriculture, and manufacturing could benefit most from easier access to finance.

At the same time, the CBN is sending a clear message that it remains vigilant. With global oil prices volatile and fiscal spending high, the bank’s dual approach—cutting the policy rate while tightening liquidity controls—reflects a balancing act between stimulating growth and safeguarding stability.

The September MPC meeting underscored a pivotal moment for Nigeria’s economy: inflation is slowing, growth is firming, and the banking sector is resilient. By cutting the MPR and recalibrating liquidity tools, the CBN is cautiously unlocking credit for growth while tightening oversight of liquidity surges.

The coming months will test whether this delicate mix of easing and restraint can deliver lasting stability without reigniting inflationary pressures.

The CBN has cut Nigeria’s MPR to 27% at its September 2025 MPC meeting, citing disinflation, stronger GDP growth, and banking sector resilience, while introducing a 75% CRR on non-TSA deposits to manage liquidity risks.