Nigeria’s foreign exchange reserves have climbed to $55.25 billion, reaching their highest level in about 18 years, as the Central Bank of Nigeria (CBN) announced a major reduction in its benchmark interest rate.
The CBN Monetary Policy Committee reduced the Monetary Policy Rate (MPR) by 350 basis points, from 26.5 per cent to 23 per cent. The decision was announced following the committee’s 307th meeting and comes amid improving external reserves, greater stability in the foreign exchange market and a decline in inflation.
The latest reserve figure represents a significant increase in Nigeria’s external buffer and provides the country with greater capacity to meet foreign-exchange obligations and support stability in the currency market.
The interest-rate reduction is also expected to affect the cost of borrowing across the economy. Business groups have welcomed the reduction but are calling for commercial banks to translate the lower policy rate into more affordable loans for businesses.
The Organised Private Sector has argued that high borrowing costs have continued to restrict expansion and investment, particularly for businesses that depend heavily on bank financing.
The CBN retained the Cash Reserve Requirement at 45 per cent for deposit money banks, while resetting the standing facilities corridor around the new 23 per cent MPR.
The development comes as Nigeria’s inflation rate eased to 15.39 per cent in August, while foreign exchange liquidity and external reserves have continued to improve.
The combination of stronger reserves, moderating inflation and a lower policy rate marks a significant development for Nigeria’s financial market, although the effect on lending rates and wider business activity will depend on how quickly banks adjust their pricing.
