Seen from Lagos, the central bank's 350bp cut is calibration, not easing

Summary

In a piece published in Nairametrics on 13 October, economist and banker Tope Fasoranti defends the Central Bank of Nigeria's decision on 22 September to cut the policy rate by 350 basis points to 23%. In his view, the headline cut is large but the effective impact is moderate. The rate corridor was narrowed from +50/−450 basis points to +50/−300, so the deposit-rate floor fell from 22% to 20%, a drop of only 200 basis points. The overnight rate closed the week of 25 September at 20.77%.

The author stresses that real rates have not fallen but risen. In August 2025 the 27.5% policy rate stood about 4.4 points above inflation of 23.14%. Today the 23% rate sits about 7.6 points above inflation of 15.39%. Using a Taylor rule, the formula that ties the policy rate to the inflation target and the output gap, he derives a range of 17–24% and places 23% at the cautious end. Real rates are about 9 points in Ghana, 5 in Egypt, 3 in South Africa and 2 in Kenya. Core inflation eased from 16.82% in May to 13.29% in August; private-sector credit, at 84.55 trillion naira, is still contracting in real terms.

For Fasoranti, the next step is a gradual cut in the cash reserve requirement, currently held at 45%. He estimates that each 1-point fall in deposit rates lowers the funding cost of credit by about 1.8 points. He also lists the risks: persistent core inflation, food supply and the exchange rate, weak transmission, and a premature release of liquidity.