Abuja, Nigeria – The Centre for the Promotion of Private Enterprise (CPPE) has expressed concern over the weak transmission of monetary policy adjustments to lending rates in the real economy, despite welcoming the Central Bank of Nigeria’s recent rate cut.
Okay News reports that in a policy brief issued after the CBN reduced the Monetary Policy Rate by 50 basis points to 26.5 percent from 27 percent, CPPE noted that structural bottlenecks continue to limit the impact of monetary easing on businesses. The CBN’s Monetary Policy Committee had said the decision to lower the benchmark rate was driven by sustained improvements in macroeconomic indicators, particularly inflation.
While acknowledging the significance of the rate cut, CPPE cautioned that borrowing costs in the real sector remain elevated. The report stated that a major concern remains the weak transmission mechanism 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 high Cash Reserve Ratio which constrains bank liquidity, elevated cost of deposits, risk premiums reflecting macroeconomic uncertainty, crowding-out effects from government borrowing, and high operating costs within the banking system.
According to the think tank, unless these structural rigidities are addressed, the benefits of monetary easing may not translate into lower borrowing costs for manufacturers, SMEs, agriculture, and other productive sectors. It stressed that improving policy transmission should be a priority, requiring 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.
At Tuesday’s MPC briefing in Abuja, the MPR was cut to 26.5 percent, marking the lowest rate since May 2024 when it stood at 26.25 percent. However, other key policy parameters were retained, including Cash Reserve Ratio at 45 percent for commercial banks and 16 percent for merchant banks, Liquidity Ratio at 30 percent, and Standing Facilities Corridor at +50/-450 basis points around the MPR. The committee said maintaining these parameters reflects a cautious stance aimed at preserving financial stability despite easing inflationary pressures.
CPPE commended the CBN for what it described as a measured and data-driven adjustment, noting that the easing aligns with improving macroeconomic fundamentals including declining inflation, rising reserves, improved trade balance, and greater FX stability. However, the organisation identified two critical priorities to ensure the effectiveness of the rate cut: strengthening monetary transmission to lower lending rates for the real sector, and advancing credible fiscal consolidation to safeguard macroeconomic stability. The think tank concluded that with structural reforms and disciplined fiscal management, the current policy direction could stimulate stronger investment flows and more sustainable economic growth.
The decision to cut the benchmark interest rate while maintaining other parameters suggests the CBN is adopting a gradual and cautious approach to monetary easing. Whether the benefits translate to lower lending rates for businesses depends on addressing structural rigidities in the banking system.
