Market News

BY Hope Moses-Ashike & Onyinye Nwachukwu

The Central Bank of Nigeria (CBN) trimmed its benchmark interest rate by 50 basis points to 26.5 per cent on Tuesday, opting for cautious easing amid global uncertainties and pre-election fiscal pressures, even as headline inflation slowed to an 11-year low.

The move is expected to reduce borrowing costs across the economy while reinforcing a protective buffer around the naira, reflecting the apex bank’s preference for a gradual, closely managed easing cycle rather than an aggressive pivot.

Olayemi Cardoso, governor of the CBN, said members of the Monetary Policy Committee (MPC) opted for a measured reduction in interest rates following nearly a year of cooling inflation, stronger foreign-exchange buffers, and improving macroeconomic conditions that created room for cautious easing. The MPC’s decision, announced at the end of its two-day meeting in Abuja, cut the benchmark rate to 26.5 per cent while signalling confidence that prior tightening measures are beginning to yield results.

Read also: CPPE applauds CBN’s 26.5% MPR cut, says growth gains hinge on fiscal discipline

The committee retained the asymmetric corridor around the policy rate at +50 to -450 basis points and left the cash reserve ratio unchanged at 45 per cent for deposit money banks, 16 per cent for merchant banks, and 75 per cent for non-TSA public sector deposits.

Analysts at the Financial Markets Dealers Association (FMDA) Research said the rate cut marks a clear shift toward monetary easing with immediate implications for financial markets.

They said in the fixed-income space, lower interest rates increase the value of existing government securities, particularly long-term bonds. Holders of longer-term securities, such as five-year bonds, are likely to benefit more than short-term investors, translating into significant valuation gains. Existing investors benefit further because new government securities issued during the easing cycle are expected to offer lower yields.

The equity market may also benefit, FMDA analysts said, as lower borrowing costs improve corporate earnings and encourage investors to shift funds into risk assets. Following strong stock market performance with returns of 51.2 per cent in 2025 and over 20 per cent so far in 2026, the lower-rate environment could support continued positive momentum. “However, the impact is mixed. While borrowers benefit from lower lending rates, savers may face reduced returns as yields on Treasury bills, money market instruments, and bank deposits gradually decline,” the analysts added.

Razia Khan, managing director and chief economist for Africa and the Middle East at Standard Chartered Bank, said the 50-basis-point cut fell short of the consensus expectation of 100 basis points. All other parameters were kept unchanged, and the next MPC meeting is scheduled for May 20. In her view, the CBN’s cautious approach reflects the pre-emptive corridor easing in November, concern over potential global risks and their impact on oil prices, and an unwillingness to be too complacent on inflation, particularly in light of the electoral cycle and fiscal risks. “Naira stability is clearly prized, the liquidity effects of bank recapitalisation will be carefully gauged, and the easing cycle is likely to be drawn out,” Khan added.

Bismarck Rewane, CEO of Financial Derivative Company, who spoke at CNBC, sees sustained appreciation of the naira at the current levels, which he said is not bad.

Muda Yusuf, chief executive officer of the Centre for the Promotion of Private Enterprise (CPPE), noted that a major concern remains the weak transmission between monetary policy adjustments and actual lending rates in the real economy. Despite reductions in the MPR, lending rates to businesses remain elevated due to structural factors, including the high cash reserve requirement, elevated deposit costs, risk premiums reflecting macroeconomic uncertainty, crowding-out effects from government borrowing, and high operating costs within the banking system. “Unless these structural rigidities are addressed, the benefits of monetary easing may not fully translate into lower borrowing costs for manufacturers, SMEs, agriculture, and other productive sectors. Strengthening policy transmission should therefore be a priority. This may require complementary measures to ease liquidity constraints, improve credit-risk frameworks, and reduce distortions in government domestic borrowing patterns. Monetary easing must reach the real economy to deliver meaningful growth outcomes,” Yusuf said.

Ayodele Akinwunmi, chief economist at United Capital Plc, said the MPC decision aligns with United Capital Research’s expectations. “The rate cut at this time helps support ongoing economic recovery and stimulate demand ahead of the electioneering season, without significantly undermining price stability. Credits should go to the real sector at lower interest rates. I expect yields on fixed-income securities to drop further and equity market valuation to increase,” he said.

Lukman Otunuga, senior market analyst at FXTM, said the CBN decision is likely to have a stabilising and potentially positive impact on the naira, which has gained 6 per cent year-to-date. “Growing confidence over the Nigerian economy in the face of lower rates, FX liquidity, and rising FX reserves, which recently reached a 13-year high, should provide a solid foundation for the naira. Even with the 50-basis-point rate cut, real rates remain high when accounting for inflation. Most importantly, Nigeria’s interest rate is still one of the highest in Africa, which may attract foreign portfolio investors, lending the naira further support,” he said.