CBN delivers cautious rate cut on election jitters

…Stock market snaps winning streak

…NECA hails rate cut

The Central Bank of Nigeria delivered a rate cut on Tuesday, but the 50-basis-point reduction to 26.5 per cent was more of a cautious nudge than the aggressive pivot many had anticipated, even as headline inflation slowed to an 11-year low.

The move is a delicate balancing act. On one hand, the apex bank wants to lower the cost of doing business; on the other, it is terrified of scaring away the foreign investors who have helped push Nigeria’s FX reserves to a 13-year high. By choosing 50 basis points rather than the 100 basis points some expected, the CBN signalled that while the tightening era is ending, it isn’t about to let its guard down.

Olayemi Cardoso, governor of the CBN, said members of the Monetary Policy Committee (MPC) opted for a measured reduction in interest rates following nearly a year of cooling inflation, stronger foreign-exchange buffers, and improving macroeconomic conditions that created room for cautious easing. The MPC’s decision, announced at the end of its two-day meeting in Abuja, signalled confidence that prior tightening measures were beginning to yield results.

Read also: CBN accelerates work on digital assets regulatory framework

The committee retained the asymmetric corridor around the policy rate at +50 to -450 basis points and left the cash reserve ratio unchanged at 45 percent for deposit money banks, 16 percent for merchant banks, and 75 percent for non-TSA public sector deposits.

Analysts at Financial Markets Dealers Association (FMDA) Research said the rate cut marks a clear shift toward monetary easing with immediate implications for financial markets.

They said in the fixed-income space, lower interest rates increase the value of existing government securities, particularly long-term bonds. Holders of longer-term securities, such as five-year bonds, are likely to benefit more than short-term investors, translating into significant valuation gains. Existing investors benefit further because new government securities issued during the easing cycle are expected to offer lower yields.

The equity market may also benefit, FMDA analysts said, as lower borrowing costs improve corporate earnings and encourage investors to shift funds into risk assets. Following strong stock market performance with returns of 51.2 percent in 2025 and over 20 percent so far in 2026, the lower-rate environment could support continued positive momentum. “However, the impact is mixed. While borrowers benefit from lower lending rates, savers may face reduced returns as yields on Treasury bills, money market instruments, and bank deposits gradually decline,” the analysts added.

Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, said the 50-basis-point cut fell short of the consensus expectation of 100 basis points. All other parameters were kept unchanged, and the next MPC meeting is scheduled for May 20. In her view, the CBN’s cautious approach reflects the pre-emptive corridor easing in November, concern over potential global risks and their impact on oil prices, and an unwillingness to be too complacent on inflation, particularly in light of the electoral cycle and fiscal risks. “Naira stability is clearly prized, the liquidity effects of bank recapitalisation will be carefully gauged, and the easing cycle is likely to be drawn out,” Khan added.

Bismarck Rewane, CEO of Financial Derivative Company, who spoke at CNBC sees sustained appreciation of the naira at the current levels, which he said is not bad.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), noted that a major concern remains the weak transmission between monetary policy adjustments and actual lending rates in the real economy. Despite reductions in the MPR, lending rates to businesses remain elevated due to structural factors, including the high cash reserve requirement, elevated cost of deposits, risk premiums reflecting macroeconomic uncertainty, crowding-out effects from government borrowing, and high operating costs within the banking system.

Read also: NECA hails CBN interest rate cut, wants more done to ease pressure on businesses

“Unless these structural rigidities are addressed, the benefits of monetary easing may not fully translate into lower borrowing costs for manufacturers, SMEs, agriculture, and other productive sectors. Strengthening policy transmission should therefore be a priority. This may require complementary measures to ease liquidity constraints, improve credit-risk frameworks, and reduce distortions in government domestic borrowing patterns. Monetary easing must reach the real economy to deliver meaningful growth outcomes,” Yusuf said.

Ayodele Akinwunmi, chief economist at United Capital Plc, said the MPC decision aligns with United Capital Research expectations. “The rate cut at this time helps support ongoing economic recovery and stimulate demand ahead of the electioneering season, without significantly undermining price stability. Credits should go to the real sector at lower interest rates. I expect yields on fixed-income securities to drop further and equity market valuation to increase,” he said.

Lukman Otunuga, senior market analyst at FXTM, said the CBN decision is likely to have a stabilising and potentially positive impact on the naira, which has gained 6 percent year-to-date. “Growing confidence over the Nigerian economy in the face of lower rates, FX liquidity, and rising FX reserves, which recently reached a 13-year high, should provide a solid foundation for the naira. Even with the 50-basis-point rate cut, real rates remain high when accounting for inflation. Most importantly, Nigeria’s interest rate is still one of the highest in Africa, which may attract foreign portfolio investors, lending the naira further support,” he said.

Stock market snaps winning streak

Nigeria’s stock market retreated on Tuesday by 0.92 percent after the Monetary Policy Committee (MPC) verdict.

Investors shifted to a cautious stance following the MPC decisions despite the market’s record-breaking run this year, which saw the All-Share Index (ASI) cross the 194,000-point milestone.

Large-cap, consumer goods and insurance stocks bore the brunt of the sell-off as traders re-evaluated their positions after MPC decisions, thereby moderating returns this year to 24.98 percent.

The NGX All Share Index (ASI) decreased to 194,484.61 points, while the value of listed stocks decreased to N124.827 trillion.

Activity level in the stock market was mixed, with the total value of stocks traded rising by 92.58 percent to settle at N53.35billion. Meanwhile, the total volume of stocks traded fell by 4.94 percent to settle at 1.14billion units.

“As we head into mid-week, the market appears to be entering a period of consolidation. The divergence between the gaining sectors (Banking and Industrials) and the retreating Consumer Goods space suggests that investors are rotating capital into value names with upcoming dividend triggers,” according to Vetiva research analysts in their February 24 post-trading commentary.

“We expect to see continued volatility as traders balance high-conviction buying in select tickers against the urge to lock in profits from the month’s 17.60 percent Month-to-Date (MtD) appreciation,” the analysts further noted.

Meristem Research analysts had, ahead of the MPC decision, noted that lower rates would likely encourage more allocation of funds into the equities market, “particularly as investors search for stronger real returns.”

NECA hails CBN’s interest rate cut

Adewale-Smatt Oyerinde, Director-General, Nigeria Employers’ Consultative Association (NECA), said the marginal reduction in the benchmark interest rate represents a cautious but noteworthy signal that monetary authorities are beginning to respond to the sustained pressures facing businesses and the productive sector.

According to him, while the 50 basis point reduction may not immediately translate into significantly lower lending rates, it reflects a gradual shift toward supporting economic growth without undermining price stability.

Read also: CBN lifts post-no-debit’ restrictions on Austin Albert’s accounts after court rulings

The NECA boss reiterated that the overall policy stance remains tight, given the retention of the Cash Reserve Ratio (CRR) at 45 per cent for commercial banks, alongside the maintenance of the liquidity ratio at 30 per cent and the asymmetric corridor around the MPR. He noted that with a substantial portion of bank deposits still sterilised, the capacity of financial institutions to expand credit to the real sector may remain constrained in the near term.

Oyerinde noted that the decision reflects a careful balancing act aimed at moderating inflation while avoiding excessive strain on businesses already grappling with high operating costs, exchange rate volatility, and weakened consumer demand. He stressed that inflation, particularly in food, energy, and transportation, continues to pose significant challenges to employers and households alike.