The Central Bank of Nigeria's Monetary Policy Committee voted 7-2 on Tuesday to cut the benchmark lending rate by 150 basis points to 18.5%, ending a two-year cycle of aggressive monetary tightening and signalling that the central bank believes inflation is now on a sustainable downward trajectory.

Inflation context

Nigeria's headline inflation rate fell to 24.1% in May — the lowest reading in 22 months — driven by a moderation in food prices following improved harvests and a relative stabilisation of the naira on the foreign exchange market. The CBN's target band is 6-9%, but Governor Olayemi Cardoso acknowledged that reaching that range would take several more years of sustained policy discipline.

"We are cutting rates because the data supports it, not because of political pressure. Inflation is falling, the naira has stabilised, and keeping rates this high is now doing more harm than good to growth." — CBN Governor Olayemi Cardoso

Market reaction

Nigerian equities surged 3.2% following the announcement, with banking stocks leading the rally. The All-Share Index closed at 98,450 points, its highest level since February. Bond yields fell sharply, with the 10-year benchmark dropping from 19.8% to 18.1% in intraday trading.

The naira strengthened marginally against the dollar on the official market, closing at ₦1,398 compared to ₦1,412 the previous day. Economists said the rate cut could attract portfolio investors seeking higher-than-average returns in a globally low-yield environment.

Impact on borrowers

Commercial banks are expected to begin reducing their prime lending rates within 30 days, though analysts cautioned that the passthrough to retail borrowers would be gradual. The average commercial lending rate currently stands at 28.4%, leaving a substantial premium above the policy rate that reflects credit risk and operational costs.

Mortgage finance companies welcomed the decision, noting that lower base rates would make home loans more accessible to middle-income Nigerians. The Federal Mortgage Bank of Nigeria said it would immediately reduce its National Housing Fund lending rate from 9% to 7.5%.