Timely reset – Economist reacts to CBN interest rate cut

Economist Dr Muda Yusuf praised the Central Bank of Nigeria's decision to reduce the interest rate to 23 percent from 26.5 percent. Yusuf, the CEO of the Centre for the Promotion of Private Enterprise, deemed the move a "timely reset." The MPC's 307th meeting prompted the rate cut, coinciding with two consecutive drops in Nigeria's inflation rate.

Yusuf noted that the magnitude of the adjustment was unexpected and marked a significant shift from prolonged restrictive monetary policies. He described the decision as a "rebalancing" of monetary policy to support growth, investment, and economic recovery, while maintaining price and financial-system stability. Yusuf cited the widening misalignment between the 26.5% monetary policy rate (MPR), 15.4% inflation, and 20% prevailing money-market rates as weakening the signalling function of the policy rate.

The CBN's characterization of the rate cut as a "recalibration or reset" underscores its importance in aligning the policy rate with current macroeconomic and financial-market conditions. For the real sector, Yusuf highlighted the positive impact of the rate reduction, which eases high financing costs that have constrained investment, production, working capital, and job creation in various sectors.

The adjustment is expected to reduce the cost of capital, boost business cash flows, stimulate investment, and enhance the economy's productive capacity.