SAMI TUNJI examines how the modest rate cut is symbolic and that sustained growth will depend on consistent reforms, stronger fiscal alignment, and sustained expansion of the non-oil sector. For much of its history, Nigeria’s economy has relied heavily on external conditions; oil booms often provided fiscal buffers, while global downturns exposed deep vulnerabilities.
The lesson has remained consistent: while external winds can help, domestic policies ultimately determine whether the country thrives or falters. Nigeria’s economy is approaching a new phase as the Central Bank cuts interest rates for the first time since 2020, signalling confidence in slowing inflation and relative exchange rate stability.
The return of policy easing after a period of strict monetary tightening suggests more than just technical adjustments; it signals a new direction in how policymakers intend to balance inflation control with the pursuit of growth.
The Central Bank of Nigeria’s recent decision to lower the Monetary Policy Rate from 27.5% to 27.5 percent may appear modest, but it is the first cut since 2020 and carries symbolic weight, suggesting confidence that inflationary pressures are easing and that supporting recovery has once again taken precedence. These recent changes at the CBN and within government reforms portend a new chapter.
Although it declines, inflation stays persistently high.
The World Bank observed in its most recent report on Nigeria that high food prices hurt poor Nigerians: “Food inflation in Nigeria remains high and particularly harmful to the poor and economically insecure. While inflation has shown signs of easing, food price pressures remain high. This disproportionately hurts poorer households, whose food spending accounts for up to 70% of the total.” Inflation has been Nigeria’s most enduring economic problem, with rising food costs, transportation costs,
According to official data, Nigeria’s inflation rate decreased steadily this year, from 24.48 percent in January to 20.12 percent in August. According to the National Bureau of Statistics, the rate dropped sharply in February to 23.18 percent and continued to decline through the first half of 2025. By June, inflation had decreased to 22.22 percent, and then it fell even further to 21.88 percent in July.
Core inflation, which excludes volatile food and energy items, fell 20.33 percent in August 2025, while food inflation, which is aided by falling prices of rice, maize, and millet, fell 21.87 percent. The August reading was the lowest rate so far this year and the fifth consecutive monthly decline. Inflation slowed to 0.74 percent in August from 1.99 percent in July on a month-over-month basis, highlighting the pace of disinflation.
This was sufficient proof for CBN Governor Olayemi Cardoso and his Monetary Policy Committee to support the national bank’s first interest rate drop since September 2020 and the first under Cardoso. The MPC reduced the Monetary Policy Rate by 50 basis points to 27% during its September 2025 meeting. Cardoso characterised the action as cautious but necessary during a press briefing held following the 302nd MPC meeting in Abuja. He cited improving harvests, the lagged effect of previous monetary tightening, and the moderation of fuel prices as reasons to anticipate inflation to continue slowing down.
“The committee’s decision to lower the monetary policy rate was based on the need to support economic recovery efforts, forecasts of declining inflation for the remainder of 2025, and the sustained disinflation observed over the last five months,” Cardoso added.
The landscape is altered by exchange rate unification.
The harmonisation of exchange rates is one of the most important developments of the last two years. For a long time, having several windows led to distortions and deterred investment. The CBN eliminated a significant barrier for investors by combining the rates into a single figure.
According to Aminu Gwadabe, head of the Association of Bureaux De Change Operators of Nigeria, the reform has improved the exchange rate’s ability to act as a buffer.
The results demonstrated that many economies were previously hesitant to allow their exchange rates to fluctuate freely. However, Nigeria has increasingly let the currency rate operate as a shock absorber due to tighter macroprudential regulation and better-anchored inflation expectations, and the central bank has refocused its efforts on stabilising economic activity,” he said.
He maintained that Nigeria could transform its present resilience into long-term growth with more solid foundations and consistent reforms.
Businesses see symbolism more than relief
The cut indicates a more accommodating posture, but it has little real-world effect on companies. The cost of borrowing is still very high. According to Bukola Bankole, a partner and corporate finance expert at TNP, the majority of businesses continue to pay more than 30% for loans.
The MPC took a small but symbolic move by cutting the benchmark rate by 50 basis points to 27%, which is the first deviation from months of rapid tightening. However, this change won’t immediately lower financing costs for companies that are currently borrowing at rates higher than 30%, but it does show that growth cannot be continuously curbed in the name of inflation management, the speaker added.
She went on to say that costs are the main cause of Nigeria’s inflation issue. Nigerian inflation is not driven by demand, as everyone is aware. Exchange rate instability, the ripple effects of eliminating subsidies, high energy costs, and disruptions in the food supply all contribute to this cost drive. Further hikes would have been the wrong course of action in light of this, she said.
Bankole emphasised the need of constancy. I’ll remark that this MPC ruling shows an attempt to strike a balance between keeping an eye on inflation and the requirement to provide room for investment and credit expansion. However, consistency is still the key obstacle because, like many other past measures, this cut will only be symbolic in the absence of stable policy, improved fiscal alignment, and structural changes that deal with the underlying drivers of inflation, she said.
However, if those conditions are met, this modest drop might really signal the start of a more sustainable policy mix that promotes growth without giving up on maintaining price stability.
Although they applauded the action, members of the Organised Private Sector contended that the cut was insufficient to alleviate the credit crunch on small firms and manufacturers. Segun Ajayi-Kadir, the director-general of the Manufacturers Association of Nigeria, had previously called the cut “welcome but inadequate.” “We predict a decrease in rates almost every time the MPC meets. While this is good, it hasn’t met our expectations in the slightest. For their borrowing to boost output, manufacturers must borrow no more than 5%, he stated.
Ajayi-Kadir underlined that borrowing prices are still unsustainable because no bank would lend at a rate lower than the MPR. “It shows that the CBN is reconsidering, but manufacturers are still waiting for a period when rates will be much lower,” he continued.
Strengthening financial system for long haul
In order to strengthen financial stability, the CBN is working on structural reforms in addition to rate changes. One of these is the anticipated rise in banks’ minimum capital requirements starting in March 2026. The goal of the proposal is to guarantee that lenders continue to be robust enough to back the government’s $1 trillion economy objective.
After years of interventionist policies, Cardoso has also worked to restore trust in the bank’s legitimacy. Cardoso made the case for closer coordination between monetary and fiscal authorities at a recent Monetary Policy Forum this year with the theme “Managing the Disinflation Process.”
Non-oil sector continues to anchor growth
Nigeria’s GDP grew 4.23 percent year over year in the second quarter of 2025, up from 3.13 percent in the first quarter. Importantly, the oil industry, which has historically been a drag on the economy, recovered 20.46 percent from 1.87 percent in the previous quarter. Improved security in the Niger Delta and the gradual expansion of activities at the Dangote Refinery were primarily credited with this reversal. According to the National Bureau of Statistics’ most recent Gross Domestic Product report, both the oil and non-oil sectors of the economy are growing.
The non-oil sector continued to contribute close to 96% of GDP, according . Agriculture recovered from a poor start to the year with a 2.82 percent growth rate. While services continued to rise by almost 4% while slowing, industrial output increased by 7.45%.
The GDP structure demonstrates how crucial it is to maintain non-oil growth. Experts identify issues in infrastructure, energy, and agriculture as the main causes of productivity declines.
Niyi Yusuf, the chairman of the Nigeria Economic Summit Group, stated that although there has been consistent progress, more has to be done. We must continue on our current path, keep up the momentum, and push for widespread expansion in all economic sectors since this is steady progress in the correct direction. To fully realise the economy’s potential, we need more pro-growth laws and regulators, a stable legal system, more private sector investments in vital industries, and asset and life protection,” he stated.
Global perspectives provide cautious optimism
According to the World Bank’s most recent Africa’s Pulse report, Nigeria is on the rise. The first half of this year saw Nigeria’s economy continue to grow (by 3.9% year over year compared to 3.5% in the first half of 2024). Services, particularly information and telecommunications services, drove faster growth (4.33%). From 1.5 million barrels per day in the second quarter of last year to 1.7 million bpd in the same period this year, oil production increased somewhat. The published GDP estimates are in accordance with methodological changes and the rebasing of Nigeria’s National Bureau of Statistics, which required shifting the base year from 2010 to 2019.
Despite global economic challenges, the World Bank said Sub-Saharan Africa’s economy is still strong, predicting regional growth to pick up speed from 3.5% in 2024 to 3.8% in 2025 and an average of 4.4% in 2026–2027.
Driven by a recovery in oil output and modest investment flows, Nigeria’s growth projection was boosted by 0.6 percentage points, one of the largest revisions among major economies. However, the bank cautioned that household welfare and corporate confidence are still significantly impacted by inflation.
According to the paper, the rebasing effect was primarily responsible for Nigeria’s economic growth, which increased by 0.6 percentage points annually between 2024 and 2027. It is anticipated that activity will rise marginally from 4.1% in 2024 to 4.2% in 2025 and firmly to 4.4% in 2026–2027. Stronger performance in services, particularly ICT, banking, and real estate, is probably what will propel Nigeria’s economy’s anticipated greater growth.
President Tinubu’s policies have reduced the volatility of the naira and improved the external position, as seen by higher reserves and a sizable positive current account surplus. It is anticipated that a more competitive naira will continue to facilitate compressed imports and modest export diversification.
It is anticipated that price pressures would continue to be high, requiring persistent monetary policy initiatives to re-establish inflation expectations. Risks such as exchange rate pressures, possible supply shocks, and volatility in international markets could impede the disinflation path’s progress towards price stability.
