The CBN has explained that its recent decision to reduce the MPR by 50 basis points would stimulate growth without undermining the stability of the naira.
According to the Deputy Director in the Monetary Policy, Christian Oboh, “We expect the rate cut of 50 basis points to have a significant impact on the real economy. This cut should support economic recovery, particularly by lowering borrowing costs, with credit channeled towards growth-enhancing sectors. We expect small businesses and similar enterprises to benefit,” he added.
He also pointed to fresh policy measures, including a new 75 per cent Cash Reserve Ratio (CRR) on non-TSA (Treasury Single Account) public sector deposits, designed to mop up excess liquidity.
He dismissed concerns that easing monetary conditions could weaken the naira.
According to him, with foreign reserves above $43 billion, stable exchange rates, narrowing spreads between official and parallel markets, and strong capital inflows from remittances and portfolio investors, the local currency remains resilient. “We do not expect any adverse impact of the rate cut on the strength of the naira. Our fundamentals are robust,” he stressed.
On how the CBN intends to keep inflation in check despite the rate cut, Oboh highlighted fiscal and structural measures such as increased agricultural output, improved security in farming communities, and competitive dynamics in the downstream petroleum sector, which have begun to ease transport costs.
“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 added.
Still on inflation taming and the decision to subject non-TSA public deposits to a 75 per cent CRR, he said: “A key measure was subjecting all non-TSA public deposits to a 75 per cent CRR, to control excess liquidity that may pose an inflation threat, which could fuel inflation. These decisions are to encourage economic recovery, and on the other hand, we are not oblivious of the risks and threat to inflation.”
Oboh acknowledged that households struggling with high living costs might not feel the impact immediately, but he emphasised that the monetary transmission process is already underway.
“When the MPR is lowered, borrowing costs for banks are reduced. If commercial banks can access funds more cheaply, they are expected to lower lending rates to households and businesses. Lower borrowing costs will cut production costs, which will then reduce product prices. This will increase purchasing power and help households cope with the cost of living,” he noted.
The CBN’s latest action, Oboh explained, also aligns with the global wave of monetary easing, citing recent decisions by the US Federal Reserve and the Bank of Ghana, which had also cut rates.
“The MPC reviewed global trends. We are aware of the global uncertainties around tariffs, trade wars, and the rest of them, and that is what the governor meant when he said he is very cautious about what happens at the global level. “MPC also took cognisance of recent monetary policy decisions taken by many central banks and also our peers at the global level. Many major central banks are cutting rates to stimulate growth and jobs,” he added.
Looking ahead, Oboh maintained that the outlook for inflation and broader economic conditions would determine the MPC’s next steps.
“The outlook showed that going into the rest of the year, we would expect inflation to trend downward. The pace will be encouraging, and if that happens, the MPC will take the best decision in the interest of the country.
“What I would like to say is to assure investors and all Nigerians that the outlook is very optimistic, and the macro indicators are also moving in the right direction, and the MPC will be guided by data, even as we approach the next MPC in November. The entire outlook for the macro economy looks optimistic.”
