The Centre for the Promotion of Private Enterprise has welcomed the Central Bank of Nigeria’s decision to cut the Monetary Policy Rate by 350 basis points to 23 per cent, describing it as a significant shift from the prolonged restrictive monetary policy regime that has constrained investment and credit access across Nigeria’s productive sectors. In a policy brief signed by CPPE Chief Executive Officer Muda Yusuf on Tuesday, the group said the adjustment could reduce the cost of capital, improve business cash flows, and stimulate investment if it is effectively transmitted to the real economy.
Read also: CPPE raises alarm over foreign traders moving into Nigeria’s retail sector
The sectors that stand to benefit most
Yusuf identified manufacturing, agriculture, construction, and logistics as the sectors most likely to benefit from the rate reduction, provided that commercial banks reflect the new monetary policy environment in their credit pricing. These are precisely the sectors that have borne the highest cost of Nigeria’s two-year monetary tightening cycle, with manufacturers reporting that high financing costs have constrained expansion, limited equipment upgrades, and suppressed working capital availability.
Reducing the MPR to 23 per cent should be viewed not merely as monetary easing, but as an important realignment of the policy rate with prevailing macroeconomic and financial market conditions. For businesses in manufacturing and agriculture, that realignment cannot come fast enough.
For context, the manufacturing sector saw bank credit fall by N1.92 trillion in 2025, with factory capacity utilisation running at between 55 and 65 per cent due to the combined effect of energy costs and credit constraints. A meaningful reduction in commercial lending rates would partially address the latter constraint even if the former remains unchanged.
Read also: CPPE warns Nigeria’s real sector faces N50tn financing gap as development finance model fails
The transmission problem
CPPE’s welcome came with a clear condition. The policy brief noted that the benefits of the rate cut would depend largely on how effectively the new rate is transmitted to the real economy. Nigeria’s lending rate transmission has historically been asymmetric: rate increases pass through to commercial lending quickly and fully, while rate reductions move slowly and incompletely.
The CBN’s decision to hold the Cash Reserve Requirement at 45 per cent for deposit money banks complicates the transmission further. With nearly half of every naira deposited locked away as reserves, the pool of funds available for lending has not expanded even as the benchmark rate has fallen. Banks facing constrained lending capacity are likely to prioritise the most creditworthy, best-collateralised borrowers when deploying whatever funds are available.
CPPE called on banks to reflect the new monetary policy environment in their credit pricing without delay, stressing that the policy adjustment’s impact on the broader economy would only be felt if financial institutions actively reduced commercial lending rates rather than simply noting the change in the benchmark.
The CBN has done its part. Whether this rate cut reaches the factory floor, the farm gate, and the small business owner depends on decisions that will be made inside commercial banks over the coming weeks.
