Central Bank of Nigeria Governor Olayemi Cardoso says record external reserves, falling inflation and steady growth gave the apex bank the room to deliver last month’s surprise interest rate cut. He described the move as an overdue repair of how monetary policy works in the country. “It took the market by surprise, and markets, as we know, generally don’t like surprises,” Cardoso admitted while speaking on a panel at the ongoing International Monetary Fund and World Bank Annual Meetings in Bangkok, Thailand.
The decision he was defending came at the 307th meeting of the Monetary Policy Committee on September 21 and 22. The committee cut the Monetary Policy Rate by 350 basis points, from 26.5 per cent to 23 per cent, when most analysts had expected a hold. It was the largest single move since 2006 and took the benchmark rate to its lowest level since February 2024. The cut also reversed much of the tightening cycle that pushed the rate to a peak of 27.5 per cent in November 2024.
Cardoso’s case rests largely on the external numbers. The MPC communiqué put gross external reserves at $55.25 billion as of September 18, the highest in 18 years and enough to cover about 11.3 months of imports. Reserves stood at about $33.28 billion in September 2023, meaning the buffer has grown by roughly 66 per cent in three years. The committee also cited a balance of payments surplus of $3.51 billion in the second quarter of 2026, up from $2.38 billion in the first, while the current account surplus rose by 67.92 per cent to $7.54 billion.
Prices have also cooled. The National Bureau of Statistics put headline inflation at 15.39 per cent in August, down from 15.43 per cent in July and 23.14 per cent a year earlier. With the policy rate at 23 per cent, the gap between the benchmark rate and inflation remains positive at about 7.6 percentage points, down from roughly 11.1 points before the cut. “These all put together a situation where we felt that we were in a relatively good place to do something we could have done earlier,” Cardoso said.
That “something” was fixing what he called a faulty transmission mechanism. According to the CBN, market interest rates had drifted away from the MPR, weakening its role as the main signal of monetary policy. Alongside the cut, the committee narrowed the standing facilities corridor from 50 basis points above and 450 below the MPR to 50 above and 300 below. Banks now borrow from the CBN at 23.5 per cent and earn 20 per cent on deposits, and the bank insists the change is an operational realignment towards inflation targeting rather than a shift in its policy stance.
Cardoso credited two reforms for making the timing right. The first was the adoption of an overnight financing rate as a transaction based benchmark, which he said gave a clearer picture of prevailing interest rates than the old system. The second was closer coordination with the fiscal authorities. “We had signed up an MOU between the fiscal and the monetary to ensure that we were all on the same page, and that was very well received,” he said.
The IMF’s First Deputy Managing Director, Dan Katz, who put questions to Cardoso, said the market absorbed the decision without disruption, which he read as a sign of confidence in the bank. Cardoso put this down to communication, saying he spent more time than usual with journalists after the meeting explaining where the economy had come from. “To do such a thing successfully, you must have an element of credibility with the market,” he said.
He also argued that Nigeria cannot simply follow other central banks. The governor noted that foreign exchange harmonisation and the removal of petrol subsidies hit Nigeria at a different point in the global inflation cycle. “So inflation now came at that when many others were easing,” he said. He added that the 12-member MPC, made up of seven internal and five external members, reaches decisions independently, and that he does not agree positions with internal members before meetings.
Some levers were left untouched. The Cash Reserve Requirement stayed at 45 per cent for commercial banks, 16 per cent for merchant banks and 75 per cent for public sector deposits outside the Treasury Single Account. The Lagos Chamber of Commerce and Industry welcomed the cut but urged measures to ensure it translates into affordable credit for businesses. Cordros Research data show the overnight rate closed the week to September 25 at 20.77 per cent, close to the new corridor floor.
The NBS’s September inflation report, due shortly, will offer the first official test of whether price conditions continue to support the reset. The MPC is expected to review the outcome at its next meeting.