IMF Backs CBN's 350-Basis-Point Rate Cut as Inflation Falls

In September, the Central Bank of Nigeria reduced its Monetary Policy Rate by 350 basis points, bringing it down to 23 percent from 26.5 percent. Financial markets found the decision surprising, yet it was absorbed without causing major disruption.

Officials at the International Monetary Fund and World Bank annual meetings held in Bangkok this month confirmed this outcome. Governor Olayemi Cardoso of the CBN offered justification for the reduction by citing stronger economic fundamentals across Nigeria.

The nation's external reserves had climbed to levels unseen for 18 years, while inflation showed consistent declines and economic growth remained on a steady trajectory. Enhanced cooperation between fiscal and monetary authorities, alongside better transparency regarding overnight interest rates, bolstered the central bank's confidence in adjusting its policy direction.

International Monetary Fund officials supported the move. According to Zeine Ould Zeidane, who leads the IMF's African Department, the rate cut represented an appropriate response to achievements in lowering inflation from previously elevated levels.

Dan Katz, serving as the IMF's first deputy managing director, viewed how the market received this decision as demonstrating renewed faith in Nigeria's monetary framework. Cardoso recognized that investors found the rate adjustment unexpected.

He explained that market participants typically express displeasure when policy changes lack advance notice. Nevertheless, he presented the adjustment as a vital step toward correcting how monetary policy flows through financial markets, noting that previous months of elevated rates had produced certain imbalances.

The IMF reminded policymakers that decisions on monetary matters ought to remain anchored in economic data and adjust as inflation patterns shift, cautioning against viewing the reduction as signalling an abandonment of the institution's earlier restrictive approach.