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Nigeria’s central bank has lowered its benchmark lending rate for the first time in five years, delivering a half-point cut amid cooling inflation and continued stability of the local naira currency.
Tuesday’s decision lowered the bank’s key interest rate to 27 per cent and was in line with the median forecast in a Bloomberg poll of economists.
Central bank governor Olayemi Cardoso said at a press conference in the capital Abuja that the decision of the 12-member Monetary Policy Committee was based on disinflation in the country — which is expected to continue — and the need to support a still-struggling economy.
Headline annual inflation slowed to 20.1 per cent in August, down from 21.9 per cent in July, marking five consecutive months of cooling prices.
Razia Khan, Standard Chartered’s head of research for Africa and the Middle East, said the central bank’s stance showed there was the possibility of “more easing to come”. The central bank holds its final rate meeting of the year in November.
“This easing signals confidence in FX stability, [with] higher reserves and a healthy current account surplus,” Khan said. “Much more importantly,” she added, the central bank “sees sustained disinflation in the months ahead, the result of previous policy choices — hinting at more easing to come”.
The latest consumer prices data marked a more significant drop compared with the same month last year, when the inflation rate was at 32.15 per cent. In January, Nigeria’s statistics agency changed the base year from 2009 to 2024 and modified the weighting of items in the consumer price index.
The publicly-funded Nigerian Institute of Social And Economic Research think-tank argued in a paper published in April that the rebasing was crucial to “reflect current economic realities, including shifts in consumer spending patterns, the emergence of new industries, and the impact of technological innovations on production and consumption”.
Cardoso also announced on Tuesday a reduction in the cash reserve ratio, the percentage of commercial bank deposits to be kept with the central bank, from 50 per cent to 45 per cent.
The naira has been stable for more than a year, after falling to record lows last year following two devaluations by President Bola Tinubu as part of wide-ranging economic reforms that included removing fuel subsidies.
The currency has gained 2.5 per cent against the dollar this month. Nigeria’s foreign reserve position has also steadily improved, with the bank reporting liquid reserves of $41.4bn at the end of last week. This year, Nigeria has attracted an influx of dollars from foreign portfolio investors enticed by high yields on its local bond market.
The rate cut will be welcomed by businesses, which have long complained about the high cost of borrowing in Africa’s most populous country.
Tuesday’s decision is the first rate cut since the Covid-19 pandemic when the central bank was led by former governor Godwin Emefiele, who is now on trial for a range of charges including obtaining money by false pretences during his tenure. He has pleaded not guilty and denied the allegations.
Cardoso, who in 2023 became governor of the apex bank, as the central bank is known locally, had pledged to embrace economic orthodoxy after the bank was plagued by scandal under his predecessor.
