CBN’s Rate Cut: A Calculated Turn Towards Growth, by Kabir Abdulsalam

After months of aggressive tightening, the Central Bank of Nigeria (CBN) has finally eased its grip.

At its 304th Monetary Policy Committee (MPC) meeting held this week, the apex bank reduced the Monetary Policy Rate (MPR) by 50 basis points to 26.5 percent. On the surface, the adjustment appears modest. In policy terms, however, it signals something more consequential: a transition from crisis containment to cautious stabilisation.

The question is not whether the rate cut is dramatic. It is whether it is justified and what it means for Nigeria’s economic direction.

The CBN’s decision rests primarily on inflation dynamics. Headline inflation has now declined for eleven consecutive months, moderating to 15.10 percent in January 2026.

That downward movement, though gradual, suggests that the bank’s prolonged tightening cycle is working. More significantly, there has been a sharp drop in food inflation from 10.84 percent to 8.89 percent.

Nigeria, since the assumption of this administration, food prices relatively shape household welfare and political sentiment meaning that this decline carries real weight. Core inflation has also eased to 17.72 percent, while month-on-month headline inflation turned negative in January. That reversal signals cooling price pressures rather than mere statistical fluctuation.

Beyond inflation, Nigeria’s external position has strengthened considerably. Gross external reserves climbed to $50.45 billion, an import cover of thirteen months and the highest level in over a decade. Improved export earnings, stronger remittance inflows, and renewed capital inflows have stabilised the naira and reinforced investor confidence.

Meanwhile, the Purchasing Managers’ Index (PMI) stands at 55.7 points, indicating continued expansion in private sector activity. This suggests that growth has not been suffocated by high rates an outcome policymakers were keen to avoid.

Taken together, these indicators give the CBN room to recalibrate. The rate cut does not represent a retreat from discipline; it reflects confidence that inflation expectations are becoming anchored.

Why CBN is still Cautious

The MPC did not open the liquidity floodgates. The Cash Reserve Ratio (CRR) remains elevated—45 percent for deposit money banks and 75 percent for public sector deposits. The asymmetric corridor around the MPR remains intact.

In practical terms, this means liquidity conditions are still tight. The rate cut is a signal—not a surrender. The CBN is clearly aware of risks.

Meanwhile, the CBN also considered election-related fiscal spending, that could inject excess liquidity into the system. Global uncertainties from protectionist trade policies to geopolitical tensions—remain volatile. And while inflation is falling, it is not yet at comfort levels. This is not a pivot toward cheap money. It is a measured adjustment within a still-restrictive framework.

What It Means for Nigerians

For households and businesses, the immediate impact will be gradual rather than dramatic. Borrowing costs may edge lower, especially for creditworthy corporate borrowers. Small and medium enterprises could see modest relief, though high CRR levels mean banks will remain selective in lending. Consumers may not feel instant relief in loan repayments, but the signal is positive: monetary pressure is easing.

More importantly, the continued decline in food inflation offers tangible benefits to ordinary Nigerians. Lower food price volatility stabilises household budgets and reduces the risk of social strain.

However, real interest rates remain positive. The CBN is ensuring that savings are protected and capital remains attractive. This balance—protecting savers while encouraging productive borrowing is delicate but necessary.

National Development Implications

The broader development implications are significant.

First, stronger reserves reduce vulnerability to external shocks. Nigeria is less exposed to oil price swings and capital flight when reserves are healthy. That stability improves the country’s negotiating power in global markets.

Second, progress in bank recapitalisation. The CBN also announced that 20 of 33 banks have meet new minimum capital thresholds. This strengthens financial system resilience. A well-capitalised banking sector is essential for financing infrastructure, industrial expansion, and diversification away from oil.

Third, improved fiscal-monetary coordination, including revenue redirection mechanisms under recent executive directives, suggests more structured economic management. When monetary and fiscal authorities move in sync, policy credibility improves.

That credibility matters. Investors respond not only to rates but to consistency.

The Mandate Question

Critics may argue that core inflation at 17.72 percent remains too high to justify easing. That concern is not without merit.

But monetary policy operates with lags. The tightening measures of previous quarters are still filtering through the economy. If the CBN waited for inflation to reach single digits before easing, it could risk over-tightening and stifling recovery.

The committee’s decision appears grounded in risk balancing rather than political expediency. By retaining key liquidity controls, the CBN maintains defensive tools should inflationary pressures resurface.

In that sense, the move remains aligned with its statutory mandate: price stability and financial system soundness.

The Road Ahead

What happens next depends on three variables.
First, fiscal discipline. If election-related or politically driven spending surges uncontrollably, it could reverse disinflation gains. Monetary policy alone cannot neutralise fiscal excesses without imposing growth costs.

Second, external stability. Sustained reserve growth and exchange rate stability are critical. Any sharp oil price correction or capital flow reversal could alter the policy calculus.

Third, structural reforms. Monetary easing is not a substitute for addressing supply chain inefficiencies, energy bottlenecks, and productivity gaps. Without complementary reforms, lower rates may not translate into sustainable growth.

If current trends hold, further gradual easing could follow later in 2026. But the CBN has clearly signaled that adjustments will remain data-dependent.

However, the 50 basis point cut is not a dramatic turning point. It is a strategic inflection.
Nigeria appears to be moving from emergency stabilisation toward controlled normalisation.

The foundation such as disinflation, reserve strength, banking sector recapitalisation are firmer than they have been in years.
Yet, optimism must be tempered with vigilance. Inflation has not been defeated. Global uncertainties persist. Fiscal prudence remains critical.

If coordination holds and reforms deepen, this policy shift could mark the beginning of a steadier growth phase. If discipline falters, the tightening cycle could return.

For now, the message from the CBN is clear: real progress has been made but the work is not done.

Kabir Abdulsalam writes from Abuja, can be reached via: [email protected]