The Centre for the Promotion of Private Enterprise (CPPE) and Professor of Capital Market, Uche Uwaleke, have welcomed the Central Bank of Nigeria’s (CBN) decision to cut the Monetary Policy Rate (MPR) by 350 basis points from 26.5 per cent to 23 per cent, saying the move could ease financing pressures, stimulate investment and support economic growth.
The development followed the 307th meeting of the CBN’s Monetary Policy Committee (MPC), which approved the substantial reduction in the benchmark interest rate as part of a recalibration of the country’s monetary policy framework.
The CPPE described the decision as a significant shift from the prolonged restrictive monetary policy regime, while Uwaleke said the rate cut was justified by moderating inflation, relative stability in the foreign exchange market, improved FX liquidity and the accretion of external reserves.
In a policy assessment, CPPE Chief Executive Officer, Dr Muda Yusuf, said the magnitude of the adjustment was largely unexpected but appropriate given the improving inflation trajectory and the growing economic costs associated with maintaining a highly restrictive interest-rate environment.
The organisation also welcomed the review of the asymmetric corridor around the MPR from +50/-450 basis points to +50/-300 basis points, describing the changes as a broader reset of the monetary policy architecture.
According to the CPPE, there had been a widening gap between the previous MPR of 26.5 per cent, inflation of about 15.4 per cent and prevailing money-market rates of around 20 per cent.
It said the disparity had weakened the signalling function of the policy rate and raised concerns about the effectiveness of monetary policy transmission.
The organisation therefore said the reduction of the MPR to 23 per cent should be viewed not merely as monetary easing but as a realignment of the policy rate with prevailing macroeconomic and financial-market conditions.
Uwaleke similarly said the moderation in inflation had provided the CBN with greater room to reassess the level of monetary restriction, while improved stability in the FX market and stronger external buffers had created a more favourable environment for the rate reduction.
He identified improved liquidity in the foreign exchange market as another factor supporting the decision, noting that greater availability of FX could help reduce pressure on the naira and strengthen confidence in the market.
The capital market professor also said the accretion to external reserves provided an additional buffer for managing potential external shocks as monetary conditions become less restrictive.
The CPPE said the rate cut could provide significant relief to the real sector, where high borrowing costs have constrained investment, production, working capital and job creation.
It said commercial lending rates had remained at levels difficult to reconcile with productive investment, particularly in manufacturing, agriculture, construction, logistics and other sectors with long investment cycles and tight operating margins.
According to the organisation, lower interest rates could reduce the cost of capital, improve business cash flows, stimulate investment and strengthen Nigeria’s productive capacity.
Uwaleke also noted that the reduction in the benchmark rate could have implications for borrowing costs, investment and economic activity, although he stressed that the extent of the benefits would depend on how effectively the new policy stance was transmitted through the banking and financial system.
