Central Bank of Nigeria (CBN) Governor Olayemi Cardoso has explained why the bank reduced its benchmark interest rate to 23 per cent in September. He said improving economic conditions and better coordination with fiscal authorities supported the decision.
Speaking at the ongoing World Bank and IMF meetings in Bangkok, Thailand, Cardoso discussed the move during a panel session. The discussion focused on how central banks make decisions and communicate during uncertain times.
The rate cut surprised many market watchers after two consecutive meetings without changes. The CBN had maintained the Monetary Policy Rate (MPR) at 26.5 per cent in May and July. Before then, it reduced the rate from 27 per cent to 26.5 per cent in February.
Why the CBN Cut Interest Rates
Cardoso admitted that the decision caught the market off guard. However, he stressed that the bank carefully planned how to communicate its decision.
“It took the market by surprise, and markets, as we know, generally don’t like surprises,” Mr Cardoso said.
He explained that stronger cooperation between fiscal and monetary authorities helped prepare the ground for the decision. Both sides signed a memorandum of understanding (MOU) to improve coordination and ensure they shared the same goals.
Cardoso also highlighted changes to the overnight rate system. According to him, the new system provides better clarity about actual interest rates. These changes helped address weaknesses in how monetary policy affects the wider economy.
Falling Inflation and Stronger External Reserves
The CBN governor said Nigeria’s economic conditions also supported the rate cut. He pointed to rising external reserves, falling inflation and steady economic growth.
“Our external reserves were the highest we had had in 18 years. Inflation was coming down consistently even though, internationally, in many places, it was going up; in our case, it was coming down. And growth was still going at a reasonable enough pace.”
These improvements gave the monetary authorities more confidence to adjust interest rates. Cardoso said Nigeria had built enough economic buffers to support the decision.
He added that the country was in a stronger position to correct problems affecting monetary policy transmission. This process determines how changes in interest rates influence borrowing, spending and economic activity.
Cardoso Highlights Importance of Market Trust
Cardoso also stressed the importance of clear communication after monetary policy decisions. He explained that discussions with journalists helped the public understand the reasons behind the rate cut.
According to him, investors became more comfortable with the decision after understanding the economic background. He added that successful monetary policy requires trust between the central bank and financial markets.
“I will finish by saying that to do such a thing successfully, you must have an element of credibility with the markets,” he said.
Cardoso maintained that consistent decisions and clear explanations help build that credibility. He believes this trust remains important as Nigeria works to strengthen economic stability.
