In a widely anticipated move that signals a shift toward economic stimulation, the Central Bank of Nigeria (CBN) has cut the Monetary Policy Rate (MPR) by 50 basis points (bps).
The decision, reached during the first Monetary Policy Committee (MPC) meeting of 2026, marks a departure from the aggressive tightening cycle of the past two years.
The move was necessitated by a favourable convergence of fundamental economic forces, including easing inflationary pressures and a significantly bolstered external buffer.
The Numbers: A Measured Dovish Stance
While some market spectators had priced in a more aggressive 100bps cut, the 50bps reduction is seen as a calibrated strategy, mirroring the dovish pivots seen in other major African economies.
Key Drivers of the Rate Cut:
- Cooling Inflation: Persistent moderation in headline inflation provided the necessary room for the apex bank to ease.
- Stronger Naira: The local currency has maintained an impressive 6% year-to-date (YTD)
- Reserves Buffer: Foreign Exchange (FX) reserves recently hit a 13-year high, providing the CBN with enough ammunition to defend the Naira while lowering borrowing costs.
Analyst View: High Real Rates and FPI Attraction
According to Lukman Otunuga, Senior Market Analyst at FXTM, the rate cut is likely to have a stabilizing and potentially positive impact on the Naira.
He noted that even with the reduction, Nigeria’s interest rate remains one of the highest on the continent.
“Even with the 50-bp rate cut, real rates remain high when accounting for inflation. Nigeria’s interest rate is still one of the highest in Africa, which may attract Foreign Portfolio Investors (FPIs), lending the Naira further support,” Otunuga stated.
Mathew Anthony, also a Market Analyst at FXTM, added that the move would likely boost investor confidence ahead of the Q4 2025 GDP report scheduled for release later this month.
He emphasized that with favourable fundamentals at play, it was always a question of “how much” rather than “if” the rates would be cut.
The CBN is performing a delicate balancing act. By cutting the MPR by 50bps, the apex bank is signaling a pro-growth stance to the real sector without completely scaring off the carry-trade investors who have helped shore up the Naira.
What this means for you:
Borrowing Costs: Expect a gradual, albeit slow, reduction in the cost of commercial bank loans as the 50bps cut trickles down to prime lending rates.
Stock Market: Lower interest rates typically make equities more attractive. Expect a positive reaction in the NGX as investors rotate out of fixed income into stocks.
FX Stability: As long as Nigeria maintains one of the highest real interest rates in Africa, FPI inflows are expected to remain steady, supporting the Naira’s 6% YTD growth momentum.
