Rate cut may not lower business borrowing costs – CPPE

By Abubakar Yunusa

The Centre for the Promotion of Private Enterprise has warned that the recent interest rate cut by the Central Bank of Nigeria may not immediately translate to cheaper loans for businesses.
The Monetary Policy Committee of the apex bank on Tuesday reduced the Monetary Policy Rate by 50 basis points to 26.5 per cent, down from 27 per cent.
In a statement, the Chief Executive Officer of CPPE, Muda Yusuf, described the decision as “appropriate and growth-supportive”.
He said the announcement by the CBN Governor, Olayemi Cardoso, signalled a continuation of the gradual shift from aggressive monetary tightening to measured easing.
Yusuf noted that the policy direction reflected improving macroeconomic fundamentals and reinforced confidence in the economy’s stabilisation path.
According to him, sustained disinflation, improved external reserves, relative exchange-rate stability and a strengthening trade balance underpinned the decision.
“These indicators collectively signal strengthening macroeconomic resilience,” he stated.
The economist added that the rate cut sends a positive signal to investors and businesses, raising hopes of improved sentiment, gradual easing of financing conditions and possible credit expansion.
He said many firms had grappled with intense cost pressures over the past two years, including energy costs, logistics challenges, exchange-rate volatility and high interest rates.
However, Yusuf cautioned that the real impact of the rate cut would depend on the effectiveness of monetary transmission.
He stressed that lending rates remained elevated despite previous reductions in the benchmark rate, citing structural constraints such as high Cash Reserve Ratio, expensive deposits, risk premiums, government borrowing pressures and high operating costs within the banking system.
“Unless these rigidities are addressed, the benefits of monetary easing may not fully translate into lower borrowing costs for manufacturers, SMEs, agriculture and other productive sectors,” he said.
Yusuf also raised concerns over fiscal vulnerabilities, including high public debt, persistent budget deficits and rising debt-service obligations.
He called for stronger non-oil revenue mobilisation, expenditure rationalisation, improved fiscal transparency and a credible deficit reduction strategy.
According to him, closer coordination between fiscal and monetary authorities is essential to safeguard macroeconomic stability.
While commending the CBN for what he described as a measured and data-driven adjustment, Yusuf maintained that strengthening policy transmission and advancing fiscal consolidation remain crucial to achieving sustainable economic growth.