By Zita Ifeanyichukwu
The Central Bank of Nigeria recently reduced its Monetary Policy Rate (MPR) from 26.5 percent to 23 percent, representing a 350-basis-point reduction.
The decision, announced after the Monetary Policy Committee’s meeting on September 21 and 22, 2026, is expected to influence borrowing costs, investment decisions, and economic activity.
The CBN stated that the adjustment was aimed at strengthening monetary policy transmission and making the MPR a stronger signal for interest rates in the economy.
The rate cut has been welcomed by business groups, including the Manufacturers Association of Nigeria, which said the move could ease pressure on businesses.
However, the major question remains whether the reduction in the benchmark rate will actually translate into cheaper loans for businesses and households.
The biggest challenge is the gap between the CBN’s benchmark rate and the actual cost of borrowing faced by businesses.
A reduction in the MPR does not automatically mean that commercial banks will reduce their lending rates by the same margin. Before the latest decision, the average maximum lending rate had remained above 30 percent, showing how expensive credit has been for borrowers.
For small and medium-sized businesses, which often depend on bank loans to purchase equipment, restock goods, expand operations, or manage cash flow, high borrowing costs can limit growth.
When businesses borrow at high interest rates, a significant portion of their revenue may go toward servicing loans instead of paying workers, purchasing stock, or expanding the business.
The reduction of the MPR to 23 percent could provide some relief if banks pass the lower policy rate through to their customers.
However, monetary policy transmission remains important. The CBN itself has identified weak transmission between its policy rate and market rates as one of the issues behind the recent adjustment.
Banks consider several factors when determining lending rates, including their cost of funds, operating expenses, credit risks, and the likelihood of loan repayment.
Therefore, a 3.5 percentage-point reduction in the MPR does not automatically mean that a business that previously borrowed at a particular rate will suddenly receive a loan at a much lower rate.
The impact could also take time to become visible. Businesses may need to wait before banks adjust their lending products, while existing borrowers may not immediately benefit if their loan agreements have fixed or previously agreed terms.
For businesses, especially manufacturers and small enterprises, cheaper credit could improve their ability to invest, increase production, and create jobs. But if lending rates remain high despite the MPR reduction, the effect of the policy on the real economy may be limited.
The real issue is not simply that the CBN has reduced the interest rate. The important question is whether the reduction will reach the businesses and individuals that need affordable credit.
Nigeria needs a financial system where changes in monetary policy can translate more effectively into the real economy. If the MPR falls but businesses continue to face very expensive loans, the benefits of the policy may not be fully felt.
The situation also raises the question of access. Even if borrowing becomes cheaper, businesses without sufficient collateral, credit history, or stable cash flow may still struggle to obtain loans.
The reduction of the MPR to 23 percent is significant, but its real impact should be measured by what happens to the cost and availability of credit.
For the policy to have a meaningful effect on businesses, commercial banks need to respond to improved monetary conditions where their own funding and risk conditions allow.
Businesses, particularly small enterprises, also need greater access to transparent and affordable financing.
The rate cut should therefore not be viewed only as a change in percentage figures. Its real success will depend on whether businesses can borrow at more manageable rates, increase production, maintain employment, and expand their operations.
Ultimately, Nigerians will judge the impact of the rate cut not by the announcement itself, but by whether credit becomes easier and less expensive to obtain.