ABUJA, Sept. 28 (Xinhua) -- The recent reduction of Nigeria's benchmark interest rate from 26.5 percent to 23 percent represents a significant shift toward monetary easing and signals improving macroeconomic conditions in Africa's most populous country, local experts and officials have said.
The Central Bank of Nigeria's (CBN) Monetary Policy Committee cut the benchmark rate by 350 basis points at a meeting in Abuja, the Nigerian capital, last week, marking the largest rate reduction in the current monetary policy cycle.
The decision followed consecutive rate holds at 26.5 percent in May and July.
Olayemi Cardoso, governor of the CBN, told the media that the easing was driven by sustained moderation in inflation and improved conditions in the foreign exchange market.
According to Cardoso, the apex bank recalibrated the standing facilities corridor to up 50 or down 300 basis points around the monetary policy rate, while retaining the cash reserve ratio for deposit money banks at 45 percent, merchant banks at 16 percent and non-Treasury Single Account public sector deposits at 75 percent.
Local financial experts welcomed the rate cut but urged the CBN to pursue further reductions to expand credit access for small businesses and support industrial growth.
Okechukwu Unegbu, former president of the Chartered Institute of Bankers of Nigeria, told Xinhua that the rate reduction was a step in the right direction, but noted that interest rates remained too high to provide "meaningful relief" to real-sector operators.
Unegbu called for further rate cuts to enable deposit money banks to offer more affordable credit to small and medium-sized enterprises and industrial operators. He cautioned that high borrowing costs and hidden bank charges continued to constrain domestic productivity and make it difficult for local enterprises to expand despite the easing of monetary policy.
Boniface Okesie, president of the Progressive Shareholders Association of Nigeria, said improvements in key macroeconomic indicators provided room for further monetary easing. He pointed to the country's gross foreign exchange reserves rising to 54 billion U.S. dollars, second-quarter gross domestic product growth reaching 4.43 percent, and headline inflation declining to 15.39 percent in August.
Okesie said the speed at which commercial banks pass on lower interest rates to real-sector borrowers would remain a crucial factor in shaping Nigeria's economic growth in the coming quarters.
"High borrowing costs place local manufacturers at a disadvantage when producing goods for domestic consumption," Okesie said, adding that current market conditions tend to favor foreign portfolio investors over local producers.
The Manufacturers Association of Nigeria (MAN) also welcomed the rate cut, saying the decision would ease pressure on local businesses.
Segun Ajayi-Kadir, director general of MAN, said in a statement that the reduction signaled a shift away from the tight monetary stance that had constrained manufacturing activity in the country.
"The association expects the lower policy rate to reduce borrowing costs and improve access to working capital, inventory financing and investment funds," Ajayi-Kadir added.
