The Central Bank of Nigeria (CBN) reduced its main interest rate by 3.5 per cent on Tuesday in Abuja, offering financial relief to local businesses while risking pressure on the national currency.
Central Bank Governor Yemi Cardoso announced the interest rate reduction from 26.5 per cent down to 23 per cent following a two-day Monetary Policy Committee meeting. The policy change aims to lower credit costs for domestic companies that have struggled with high borrowing expenses.
Cardoso explained that the change restores the main interest rate as the true guide for bank lending after market rates fell out of step with official policy. Lower borrowing costs allow manufacturers, farmers, and builders to buy new machinery, hire workers, and fund daily operations.
To keep money in the banking system stable, the central bank kept cash reserve requirements unchanged at 45 per cent for commercial banks, 16 per cent for merchant banks, and 75 per cent for public-sector deposits not in the Treasury Single Account.
The rate reduction coincides with the third anniversary of Cardoso taking office. Reflecting on his tenure, the governor said his team rescued the economy from severe money distortions, high inflation, and an unpaid N23.7 trillion government overdraft.
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Currency risks and foreign reserve buffers
Inspite of the benefit to local businesses, the unexpected rate reduction creates risks for the naira. International investors now earn less interest in Nigeria at a time when central banks in the United States and Europe recently raised their rates by 0.25 per cent due to rising energy costs.
This difference in rates could cause foreign investors to move their money out of Nigeria. A drop in foreign investment would increase pressure on the naira and make importing goods more expensive.
However, Nigeria holds strong financial buffers to defend the naira. Gross foreign reserves reached an 18-year high of $55.25 billion on September 18, 2026, providing enough money to pay for 11.3 months of imports.
The CBN also reported that high crude oil prices, diaspora money transfers, and strong international trade created a $3.51 billion balance-of-payments surplus between April and June 2026, up from $2.38 billion recorded between January and March.
The Centre for the Promotion of Private Enterprise welcomed the interest rate cut as a positive step toward economic growth. Chief Executive Officer Dr Muda Yusuf said the lower rate will help lower government borrowing costs, provided commercial banks pass the lower interest rates directly to their customers.
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