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Why CBN Cut Rate After Months of Tightening – Cardoso
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has cut the benchmark interest rate to 23 per cent from 26.5 per cent, ending months of tight monetary policy as inflation continues to ease.
CBN Governor, Olayemi Cardoso, announced the decision on Tuesday at the end of the committee’s 307th meeting in Abuja, saying improved economic fundamentals had created room for the apex bank to recalibrate its monetary policy.
Cardoso said the committee decided to “reset the monetary policy rate to 23 per cent”, after keeping the rate unchanged at its previous two meetings.
The decision follows a 50-basis-point cut announced in February 2026 and comes as Nigeria’s headline inflation continues to moderate.
According to the latest Consumer Price Index released by the National Bureau of Statistics, headline inflation eased marginally to 15.39 per cent in August 2026, from 15.43 per cent in July, marking the third consecutive monthly decline after three months of increases.
Explaining the rationale behind the rate cut, Cardoso said the CBN’s earlier aggressive tightening had helped address the monetary and foreign exchange pressures that confronted the economy when he assumed office.
He described the latest decision as a “reset and calibration” of monetary policy, stressing that it did not represent an abandonment of the discipline that had guided the bank’s response to inflation and other economic pressures.
Cardoso said the CBN inherited significant monetary distortions, including a Ways and Means balance of ₦23.7 trillion and interventions exceeding ₦10 trillion.
He said the accumulation of excess liquidity had contributed to inflationary pressures, requiring the apex bank to adopt a restrictive monetary stance.
The CBN subsequently pursued aggressive rate hikes, even as some major central banks in other economies were beginning to ease monetary policy.
Cardoso said Nigeria’s circumstances required a different approach, with monetary decisions guided by domestic economic conditions rather than simply following the direction of other central banks.
He said the objective was to restore price and financial stability while addressing distortions in the foreign exchange market and rebuilding confidence in the economy.
The moderation in inflation was one of the developments that informed the latest policy adjustment.
Cardoso said inflation had fallen from around 30 per cent when the current CBN leadership assumed office to 15.39 per cent in August.
He said the decline indicated that the measures adopted during the tightening cycle were beginning to produce results, creating an opportunity to reassess the level of monetary restriction.
Rather than maintaining a policy stance indefinitely, he said the CBN had to respond to changing economic conditions and adjust its instruments accordingly.
The governor, however, indicated that the improvement did not mean the inflation challenge had been completely resolved.
He said the bank would continue to monitor developments and make further decisions based on available data and the direction of the economy.
Cardoso also pointed to the improvement in Nigeria’s external position as another factor behind the policy adjustment.
He said the country’s foreign exchange reserves had risen above $55 billion, which he described as the highest level in about 18 years.
The stronger reserve position, he said, had improved Nigeria’s external buffers and contributed to greater stability in the foreign exchange market.
The apex bank governor attributed the improvement to consistency and discipline in policy implementation, alongside stronger diaspora remittances.
He also highlighted reforms to the foreign exchange market, particularly the move away from multiple exchange rate windows towards a more transparent system based on willing buyers and willing sellers.
According to him, the previous system had created significant distortions, with access to foreign exchange sometimes determined by connections rather than transparent market principles.
The reforms, he said, had helped reduce volatility and improve confidence in the market.
Despite the improved conditions, Cardoso identified monetary policy transmission as an area requiring further attention.
He said there was still a gap between the MPR and the interbank rate, which could weaken the transmission of changes in the benchmark rate to the wider financial system.
The governor said the CBN needed to close that gap so that changes in its policy rate could more effectively influence financial conditions and economic activity.
This, he explained, was part of the reason the latest decision should be viewed as a calibration of monetary policy rather than a wholesale change in direction.
Cardoso said the rate cut should not be interpreted as a return to the accommodative monetary conditions that preceded the tightening cycle.
Instead, he said the CBN was adjusting its stance after the economic conditions that necessitated aggressive tightening had changed.
He said the bank’s policy decisions would continue to be guided by inflation, liquidity conditions, developments in the foreign exchange market and the broader state of the economy.
The governor also said the reforms had contributed to renewed investor confidence, with businesses better able to make decisions in an environment of greater stability and predictability.
