Rate Cut Won’t Lower Borrowing Costs without Structural Fixes-CPPE
The Centre for the Promotion of Private Enterprise has warned that the recent interest rate cut by the Central Bank of Nigeria may deliver limited relief to businesses unless deep-rooted structural constraints within the financial system are addressed.
In a policy brief released after the apex bank reduced the Monetary Policy Rate (MPR) by 50 basis points to 26.5 per cent from 27 per cent, the private sector advocacy group described the move as positive for growth but insufficient to significantly ease lending conditions in the real economy.
The rate cut, announced at the Monetary Policy Committee’s 304th meeting in Abuja, followed easing inflationary pressures and improving macroeconomic indicators. Headline inflation has slowed markedly, while foreign exchange stability and stronger external reserves have bolstered confidence.
However, the CPPE cautioned that the transmission of monetary policy adjustments to actual lending rates remains weak, leaving manufacturers, small and medium-scale enterprises, agriculture and other productive sectors burdened by high credit costs.
According to the think tank, several structural bottlenecks continue to blunt the impact of monetary easing. These include the elevated Cash Reserve Ratio (CRR) of 45 per cent for commercial banks and 16 per cent for merchant banks, high deposit costs, persistent risk premiums driven by macroeconomic uncertainty, the crowding-out effect of government domestic borrowing, and rising operating costs within the banking system.
“Despite reductions in the MPR, lending rates to businesses remain elevated,” the CPPE stated, stressing that without complementary reforms, monetary easing may not translate into meaningful reductions in borrowing costs.
While the CBN cut the benchmark rate to 26.5 per cent, its lowest level since May 2024, it retained other key policy parameters, including a 30 per cent liquidity ratio and an asymmetric corridor of +50 and -450 basis points around the MPR. The decision reflects what the apex bank described as a cautious approach to easing, aimed at sustaining financial stability while inflation moderates.
The CPPE commended the CBN for what it called a measured and data-driven shift, noting that declining inflation, improved trade balance, rising reserves and relative foreign exchange stability have created room for limited policy relaxation.
Nonetheless, it identified two critical imperatives for the economy: strengthening monetary policy transmission to ensure lower lending rates for the real sector, and advancing credible fiscal consolidation to safeguard macroeconomic stability.
The latest adjustment marks the first rate cut after an extended period of aggressive tightening that had pushed the benchmark rate to 27 per cent in November. But analysts say that unless structural rigidities in liquidity management and public sector borrowing are addressed, the benefits of the easing cycle may remain largely confined to financial markets rather than translating into broad-based economic expansion.
