CPPE Says Weak Lending Could Limit New Interest Rates Impacts

The Centre for the Promotion of Private Enterprise(CPPE) has warned that weak lending transmission could limit the impact of the recent decision of the Central Bank of Nigeria (CBN) to cut interest rate.

The apex bank at the end of its MPC meeting on Tuesday reduce the Monetary Policy Rate by 50 basis points to 26.5 per cent, signaling a gradual shift from aggressive tightening toward measured easing owing to improving macroeconomic fundamentals

In its policy brief on the outcome of the meeting of the Monetary Policy Committee (MPC), the Chief Executive Officer of CPPE, Muda Yusuf, said the policy direction supports growth and reinforces confidence in the economy’s stabilisation path.

According to him, the easing was supported by sustained disinflation, noting that headline inflation has declined for eleven consecutive months, while the external reserves, driven by stronger export earnings and remittance inflows, as well as relative exchange rate stability, has improved, helping to anchor inflation expectations.

Yusuf also pointed to improvements in Nigeria’s trade balance, which he said reflect stronger external sector performance and strengthening macroeconomic resilience.

The CPPE noted that the rate cut sends a positive signal to investors and businesses, as it could improve investor sentiment, ease financing conditions and strengthen private sector confidence. It added that the policy could also support credit expansion over time.

Businesses have faced significant cost pressures in recent years, including high energy costs, logistics challenges, exchange rate volatility and elevated borrowing costs, and the CPPE stressed that the modest monetary easing will provide some relief.

However, CPPE cautioned that the effectiveness of the policy would depend on how well it translates into lower lending rates for businesses.

It explained that structural factors such as the high Cash Reserve Ratio (CRR), elevated cost of deposits, risk premiums linked to macroeconomic uncertainty, government borrowing and high operating costs in the banking sector continue to keep lending rates high.

According to the CPPE, unless these structural constraints are addressed, the benefits of monetary easing may not fully reach manufacturers, small and medium enterprises, agriculture and other productive sectors.

The organisation called for complementary measures to ease liquidity constraints, improve credit risk frameworks and reduce distortions caused by government domestic borrowing.

It also stressed the need for fiscal discipline, noting that Nigeria’s elevated public debt, persistent fiscal deficits and budget financing challenges pose risks to macroeconomic stability.

CPPE said debt servicing continues to consume a significant portion of government revenue, limiting fiscal flexibility.

It called for stronger non oil revenue mobilisation, expenditure rationalisation, improved fiscal transparency and a credible deficit reduction strategy.

CPPE further stated that sustained exchange rate stability and reserve growth could help attract foreign portfolio inflows into Nigeria’s financial markets.

It concluded that while the rate cut reflects improving economic conditions, strengthening monetary policy transmission and ensuring fiscal discipline will be critical to achieving sustainable economic growth.