WED FEB 25 2026-theGBJournal| The recent interest rate cut by the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) by 50 basis points to 26.5 percent is a positive signal for businesses and investors, but its real impact will depend on effective policy transmission and stronger fiscal discipline, the Centre for the Promotion of Private Enterprise (CPPE) has said.
The think tank noted that while the easing move could lower borrowing costs and stimulate investment, structural bottlenecks may blunt its intended benefits.
According to CPPE, the key challenge lies in ensuring that the rate cut translates into reduced lending rates for businesses and households.
The group also stressed that monetary easing must be complemented by prudent fiscal management to avoid reigniting inflationary pressures.
”This policy direction is appropriate and growth-supportive. It reflects improving macroeconomic fundamentals and reinforces confidence in the economy’s stabilisation trajectory.”
The CPPE noted that while the easing move could lower borrowing costs and stimulate investment, structural bottlenecks may blunt its intended benefits.
The major concern for CPPE remains the weak transmission mechanism between monetary policy adjustments and actual lending rates in the real economy.
The CPPE is worried that 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.
”Unless these structural rigidities are addressed, the benefits of monetary easing may not fully translate into lower borrowing costs for manufacturers, SMEs, agriculture, and other productive sectors,” CPPE said.
”Strengthening policy transmission should therefore 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.”
While monetary policy is moving in the right direction, fiscal vulnerabilities remain significant.
Nigeria’s elevated public debt levels, persistent fiscal deficits, and ongoing budget financing challenges pose macroeconomic risks. Debt-service obligations continue to absorb a substantial portion of government revenues, limiting fiscal flexibility.
Sustainable macroeconomic stability requires: stronger non-oil revenue mobilisation, expenditure rationalisation, improved fiscal transparency, credible deficit reduction strategy, reduced dependence on high-cost domestic borrowing.
Without fiscal consolidation, monetary easing could be undermined by continued fiscal pressures and crowding-out effects in the financial system.
”Policy coordination between fiscal and monetary authorities is therefore essential,” CPPE said.
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