At its 304th Monetary Policy Committee (MPC) meeting, the Central Bank of Nigeria (CBN) reduced the Monetary Policy Rate (MPR) by 50 basis points to 26.5%. This marks the first rate cut in the current tightening cycle.
Other key parameters remain unchanged:
- CRR: 45% (Commercial Banks); 16% (Merchant Banks)
- Liquidity Ratio: 30%
What This Means in Practical Terms
This is an early adjustment and not a flood of cheaper money. Banks are still operating under a high CRR, so lending rates are unlikely to drop immediately.
However, this move may signal that the rate cycle is beginning to turn. When policy momentum shifts, banks gradually become more flexible, especially with well-structured businesses that demonstrate strong financial discipline.
In our view, this could be the first of two or more rate cuts in 2026, depending on inflation trends and naira stability.
What This Could Mean for Your Business
Borrowing Costs: There may not be immediate relief, but this is a good time to initiate repricing conversations. If you have facilities priced above 30% effective cost, start discussions early rather than waiting for further cuts.
Access to Credit: Credit conditions will likely remain selective. Lenders are prioritizing businesses with clean financial records, strong governance structures, and clear cash flow visibility.
Working Capital Structure: If your business relies heavily on overdrafts or short-tenor facilities, consider converting part of that exposure into structured term debt. The economics are gradually becoming more favorable.
Growth and Investment Decisions: Lower rates improve long-term investment returns on paper. However, FX risk and cost pressures remain. Expansion funded with expensive short-term debt still carries significant risk.
Our Forward View
We expect at least one additional rate cut before the second half of 2026, subject to inflation moderation, naira stability, and fiscal spending trends. The tone of the next MPC communication will be particularly important.
In summary, this policy shift creates a timely opportunity to get ahead of the curve. It’s a good moment to review your borrowing costs, especially any facilities priced above 30%, and start conversations with your lenders early. Strengthening your financial reporting with up-to-date management accounts and audited statements will also put you in a stronger position when negotiating rates or seeking new credit. Finally, consider spreading your funding across multiple sources rather than relying heavily on one bank or short-term overdrafts.
What This Means in Practical Terms
This is an early adjustment and not a flood of cheaper money. Banks are still operating under a high CRR, so lending rates are unlikely to drop immediately.
However, this move may signal that the rate cycle is beginning to turn. When policy momentum shifts, banks gradually become more flexible, especially with well-structured businesses that demonstrate strong financial discipline.
In our view, this could be the first of two or more rate cuts in 2026, depending on inflation trends and naira stability.
What This Could Mean for Your Business
Borrowing Costs: There may not be immediate relief, but this is a good time to initiate repricing conversations. If you have facilities priced above 30% effective cost, start discussions early rather than waiting for further cuts.
Access to Credit: Credit conditions will likely remain selective. Lenders are prioritizing businesses with clean financial records, strong governance structures, and clear cash flow visibility.
Working Capital Structure: If your business relies heavily on overdrafts or short-tenor facilities, consider converting part of that exposure into structured term debt. The economics are gradually becoming more favorable.
Growth and Investment Decisions: Lower rates improve long-term investment returns on paper. However, FX risk and cost pressures remain. Expansion funded with expensive short-term debt still carries significant risk.
Our Forward View
We expect at least one additional rate cut before the second half of 2026, subject to inflation moderation, naira stability, and fiscal spending trends. The tone of the next MPC communication will be particularly important.
In summary, this policy shift creates a timely opportunity to get ahead of the curve. It’s a good moment to review your borrowing costs, especially any facilities priced above 30%, and start conversations with your lenders early. Strengthening your financial reporting with up-to-date management accounts and audited statements will also put you in a stronger position when negotiating rates or seeking new credit. Finally, consider spreading your funding across multiple sources rather than relying heavily on one bank or short-term overdrafts.
