CBN’s Easing of Credit Conditions: A Welcome and Timely Intervention- CPPE

September 27, 2025 admin

The Centre for the Promotion of Private Enterprise (CPPE) commends the Central Bank of Nigeria (CBN) and its Monetary Policy Committee (MPC) for their recent decision to ease credit conditions in the Nigerian economy.

Dr Muda Yusuf, Director/CEO Centre For The Promotion Of Private Enterprise (CPPE) in statement, noted that this marks a significant policy shift toward supporting growth and investment, following an extended period of aggressive monetary tightening to rein in inflation.

At its latest meeting, the MPC announced a 50-basis-point reduction in the Monetary Policy Rate (MPR) from 27.5 percent to 27 percent. It also adjusted the asymmetric corridor to +250/-250 basis points around the MPR. In addition, the MPC cut the Cash Reserve Ratio (CRR) of commercial banks by 500 basis points, from 50 percent to 45 percent, while retaining the CRR for merchant banks at 16 percent and maintaining the liquidity ratio at 30 percent.

A notable new measure was the introduction of a 75 percent CRR on non-TSA public sector deposits, aimed at containing excess liquidity risks that could arise from fiscal operations. This action is designed to prevent volatility in money supply growth that could undermine recent progress in price stability.

Context and Rationale

The policy easing comes at a time when the Nigerian economy has recorded five consecutive months of declining inflation, signaling that previous tightening measures are yielding results. Having restored a measure of macroeconomic stability and slowed inflationary pressures, the MPC’s pivot toward growth is both logical and timely.

High interest rates in recent quarters have significantly constrained private sector credit, increased the cost of funds, and weighed on business expansion. By lowering the MPR and CRR, the CBN is deliberately working to improve liquidity conditions, reduce borrowing costs, and unlock capital for productive sectors of the economy.

Implications for the Economy

Improved Credit Conditions:
The combination of lower MPR and reduced CRR should expand banks’ capacity to create credit, lowering lending rates and making financing more accessible for businesses, especially SMEs.
Investment and Growth Boost:
Lower cost of funds will encourage new investments, support business expansion, and enhance capacity utilization in the real sector. This will ultimately stimulate output growth and job creation.
Strengthened Financial Intermediation:
A more accommodative monetary environment will enable banks to fulfill their core function of mobilizing savings and channeling them into productive investments, reinforcing financial deepening and economic growth.
Macroeconomic Stability Safeguards:
The decision to impose a 75 percent CRR on non-TSA public sector deposits is a prudent measure to prevent excessive fiscal-driven liquidity injections from destabilizing the financial system.

Complementary Fiscal Measures Needed

While this monetary easing is a welcome development, CPPE emphasizes that fiscal policy must play a complementary role to fully unlock growth potential. The fiscal authorities should:

Sustain fiscal consolidation to ensure macroeconomic stability and maintain investor confidence.
Prioritize critical infrastructure investment to reduce production and logistics costs, improve competitiveness, and enhance productivity.
Strengthen the regulatory and institutional framework to foster a more business-friendly environment that attracts domestic and foreign investment.
Address security challenges decisively, as insecurity remains one of the most significant constraints to private sector investment and rural productivity.

Conclusion

The MPC’s decision represents a strategic and well-timed policy shift from a phase of stabilization to a phase of growth accelerator. If sustained and complemented by appropriate fiscal and structural reforms, these measures will: