CBN Cuts Interest Rate After Five Years to Boost Naira Stability, Lower Inflation, and Attract Investors
Story: written by Okafor Joseph Octobet 10,2025
Nigeria’s Central Bank (CBN) has officially ended its five-year tightening streak by cutting the benchmark interest rate, signaling a gradual shift toward a more balanced monetary policy aimed at stabilizing the naira, sustaining disinflation, and restoring investor confidence.
After its 302nd Monetary Policy Committee (MPC) meeting in Abuja on September 23, the CBN reduced the Monetary Policy Rate (MPR) by 50 basis points—from 27.5 percent to 27 percent—marking the first policy rate cut since 2020.
Governor Olayemi Cardoso explained that the decision was guided by improved inflation trends, stronger foreign exchange inflows, and a more resilient macroeconomic outlook.
“The MPC’s decision to lower the monetary policy rate reflects the sustained disinflation recorded over the past five months, as well as projections of a continued decline in inflation for the remainder of 2025,” Cardoso said. “This move supports credit growth and private-sector expansion.”
Global Shift and Domestic Gain
Analysts view the CBN’s move as part of a global pivot toward easing, following years of aggressive rate hikes. Major economies such as the United States, the United Kingdom, and the Eurozone have also begun lowering rates to stimulate growth as inflation cools post-pandemic.
Nigeria’s headline inflation dropped to 20.12% in August 2025, from 21.88% in July, marking the fifth consecutive monthly decline, according to the National Bureau of Statistics (NBS). Meanwhile, the naira has strengthened to around ₦1,530 per dollar, supported by a 26 percent increase in foreign exchange inflows and disciplined market management by the CBN.
Investor Confidence and FX Stability
The CBN’s new policy stance is expected to enhance investor confidence and deepen FX market stability. Improved oil production, stronger export performance, and steady remittance inflows have contributed to sustained dollar liquidity, which has helped the naira remain firm.
According to Cordros Securities, “The MPC’s easing stance aligns with global trends and should attract more capital inflows into emerging markets like Nigeria, further stabilizing the exchange rate.”
Cardoso reaffirmed the Bank’s commitment to maintaining policy credibility and transparency.
“As we move from unorthodox to orthodox policy, the CBN remains focused on restoring confidence and maintaining price stability,” he said.
Balancing Inflation and Growth
While inflation has eased, the CBN remains cautious. To manage liquidity, the MPC adjusted the Standing Facilities corridor to +250/-250 basis points and raised the Cash Reserve Ratio (CRR) for commercial banks to 45 percent, while retaining 30 percent liquidity ratio.
Cardoso explained that the Bank’s goal is to “maintain a delicate balance—supporting economic recovery without undermining financial stability.”
Food inflation has also declined, aided by improved agricultural supply and stable fuel prices, providing further comfort for policymakers.
Economic Outlook and Next Steps
Analysts believe the rate cut, though modest, marks the start of a new easing cycle that could extend into late 2025. Bismarck Rewane, CEO of Financial Derivatives Company, noted that “the move could ease government borrowing costs and support stronger FX inflows.”
He projected that the naira would remain stable around ₦1,500–₦1,550 per dollar, with inflation easing to around 20 percent by year-end.
Market watchers agree that the MPC’s success will depend on consistency and clear communication to sustain investor optimism.
“Without predictable policy and fiscal coordination, this move will remain symbolic,” said Bukola Bankole, a finance expert at TNP.
The Bigger Picture
Under Cardoso’s leadership, the CBN is realigning its framework toward inflation targeting, bank recapitalization, and a more transparent FX regime—all part of Nigeria’s ambition to achieve a $1 trillion economy.
The easing cycle represents more than a policy shift—it is a signal of restored confidence in Nigeria’s macroeconomic management.
As inflation continues to slow and FX inflows rise, the CBN’s strategy could strengthen the naira, attract investors, and position Nigeria for sustainable growth in 2026 and beyond.
