Rate Cut to Ease Financial Burden on SMEs, Households – CBN

The Central Bank of Nigeria (CBN) has stated that reducing the monetary policy rate by 50 basis points is a strategic move aimed at supporting the nation’s economic recovery, particularly in relation to Small and Medium-Scale Enterprises and households.

This was disclosed by the Director of the CBN’s Monetary Policy Department, Dr. Victor Oboh, who appeared on Television Continental on Thursday.

The Monetary Policy Committee at the end of its 302nd meeting reduced the Monetary Policy Rate by 50 basis points to 27.00 per cent, adjusted the Standing Facilities corridor around the MPR to +250/-250 basis points, adjusted the CRR for commercial banks to 45 per cent while retaining that of merchant banks at 16 per cent, introduced a 75 per cent CRR on non-TSA public sector deposits and kept the Liquidity Ratio unchanged at 30.00 per cent.

He stated that the decision is expected to lower borrowing costs and channel credit to growth-enhancing sectors, with a particular focus on benefiting small businesses and enterprises.

Speaking on the direct impact on citizens, Dr. Oboh explained the “transmission process” through which the rate cut is intended to ease the high cost of living. “When the MPR is lowered, commercial banks can access funds at lower costs and are expected to lower interest rates for households and businesses,” he said.

This reduction in borrowing expenses should lead to lower production costs for businesses, which in turn is expected to bring down product prices for consumers, ultimately increasing their purchasing power.

“We expect the rate cut to be reflected in the lending and retail rates of banks. Competitiveness will make banks reprice rates. Many banks are interested in funding small businesses that are promising in repayment capacity. Targeted sectors will benefit from lower borrowing costs,” he said.

On the expected impact for households, Oboh said, “There is a transmission process. When the MPR is lowered, borrowing costs for banks are reduced by the Central Bank. Commercial banks can access funds at lower costs and are expected to offer lower interest rates for households and businesses. Lower borrowing costs reduce production costs, which brings down product prices. Consumers will then pay less, purchasing power will increase, and the cost of living will decrease.”

Despite the move to ease borrowing costs, the CBN remains confident in the stability of the naira. Dr. Oboh asserted that the bank does not anticipate an adverse impact on the currency, citing “robust fundamentals that include external reserves of over $43bn, a stable exchange rate, and decelerating inflation.

“We do not expect any adverse impact of the rate cut on the strength of the naira. Our fundamentals are robust. External reserves are over $43bn, giving the Central Bank strong buffers to defend against any external shock on the currency. Inflation is decelerating, and the exchange rate is stable, so imported inflation will have zero effect.

“The harvest season will also soften inflation. The prevailing rate continues to attract foreign inflows from portfolio investors and remittances, with good liquidity in the FX market. We don’t expect the rate cut to affect the strength of the naira,” he affirmed.

He also pointed to a narrowing gap between the official and BDC exchange rates and continued strong foreign inflows as evidence of the currency’s strength.

The decision was described as a delicate “balancing act” intended to create headroom for economic growth after a period of stability. Even with the cut, the policy rate remains at 27 per cent, a level the CBN director still considers to be in a “tightening mode” that will continue to moderate inflation.

The bank is also using other measures to manage inflation risks, such as subjecting non-TSA public deposits to a 75 per cent Cash Reserve Ratio to control excess liquidity that may pose an inflation threat.

The CBN’s decision was also influenced by global trends, with the MPC taking note of recent rate cuts by other central banks, including the US and Ghana, aimed at stimulating growth amid global trade uncertainties.

Looking ahead, Dr. Oboh stated that future policy decisions will be guided by data, particularly the outlook for inflation, which is currently expected to continue its downward trend for the rest of 2025.

He assured investors and Nigerians that the outlook is very optimistic, and the macro indicators are also moving in the right direction.