CPPE: CBN’s rate cut positive for growth, but lending rates still high

The Centre for the Promotion of Private Enterprise (CPPE) has expressed concern over the weak transmission of monetary policy adjustments to lending rates in the real economy, despite welcoming the Central Bank of Nigeria’s recent rate cut.

In a policy brief issued after the Central Bank of Nigeria (CBN) reduced the Monetary Policy Rate (MPR) by 50 basis points to 26.5% from 27%, CPPE noted that structural bottlenecks continue to limit the impact of monetary easing on businesses.

The CBN’s Monetary Policy Committee (MPC) had said the decision to lower the benchmark rate was driven by sustained improvements in macroeconomic indicators, particularly inflation.

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**What they are saying **

While acknowledging the significance of the rate cut, CPPE cautioned that borrowing costs in the real sector remain elevated.

• “A major concern remains the weak transmission mechanism between monetary policy adjustments and actual lending rates in the real economy,” the report said.
• “_Despite reductions in the MPR, lending rates to businesses remain elevated due to structural factors including high Cash Reserve Ratio (CRR), which constrains bank liquidity; Elevated cost of deposits; Risk premiums reflecting macroeconomic uncertainty; Crowding-out effects from government borrowing; And high operating costs within the banking system.” _

According to the think tank, unless these structural rigidities are addressed, the benefits of monetary easing may not translate into lower borrowing costs for manufacturers, SMEs, agriculture, and other productive sectors.

It stressed that improving policy transmission should 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.” _

Backstory

At Tuesday’s MPC briefing in Abuja, the MPR was cut by 50 basis points to 26.5%, marking the lowest rate since May 2024, when it stood at 26.25%.

However, other key policy parameters were retained:

• Cash Reserve Ratio (CRR): 45% for commercial banks and 16% for merchant banks
• Liquidity Ratio: 30
• Standing Facilities Corridor: +50/-450 basis points around the MPR

The committee said maintaining these parameters reflects a cautious stance aimed at preserving financial stability despite easing inflationary pressures.

**More insights **

CPPE commended the CBN for what it described as a measured and data-driven adjustment, noting that the easing aligns with improving macroeconomic fundamentals, including declining inflation, rising reserves, improved trade balance, and greater FX stability.

However, the organisation identified two critical priorities to ensure the effectiveness of the rate cut:

• Strengthening monetary transmission to lower lending rates for the real sector.
• Advancing credible fiscal consolidation to safeguard macroeconomic stability.

CPPE concluded that with structural reforms and disciplined fiscal management, the current policy direction could stimulate stronger investment flows and more sustainable economic growth.

**What you should know **

At its 303rd meeting in November, the MPC had retained the MPR at 27%. The latest decision marks the first rate cut after an extended period of aggressive monetary tightening aimed at curbing inflation and stabilising the naira.

The decision to maintain other policy parameters suggests the CBN is adopting a gradual and cautious approach to monetary easing.

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