AAG Capital: CBN rate cut signals new monetary policy approach - Punch Newspapers

The Central Bank of Nigeria’s decision to cut its benchmark interest rate by 350 basis points signals a broader change in the way monetary policy is being managed, according to investment firm, AAG Capital Limited. The CBN reduced the Monetary Policy Rate from 26.5 per cent to 23 per cent at its September Monetary Policy Committee meeting. However, AAG Capital said the rate cut should not be viewed simply as a move to make borrowing cheaper. The investment firm said the more important signal was the CBN’s attempt to bring its benchmark rate closer to the actual rates at which money is trading in the financial system. According to the firm, market rates had increasingly moved away from the previous 26.5 per cent MPR, weakening the ability of the policy rate to guide financial conditions. “The CBN is realigning the policy rate with the rates at which liquidity is trading,” AAG Capital said in its analysis. The firm added that the decision was aimed at improving the transmission of monetary policy across the economy, as well as lowering the cost of funds. Alongside the MPR cut, the CBN adjusted its asymmetric corridor to +50/-300 basis points.See more Punch stories on Google.Add Punch on Google The Standing Lending Facility therefore moved to 23.5 per cent, while the Standing Deposit Facility was set at 20 per cent. The Cash Reserve Ratio (CRR), however, was left unchanged. AAG Capital said the unchanged CRR was significant because it suggested that the CBN was not seeking to inject liquidity broadly into the banking system. Instead, the apex bank is reducing the cost of money while retaining the ability to control how much liquidity banks have available. SERAP demands CBN explanation for $6.23m election funding CBN data localisation raises skills, security concerns CBN allots N8.14tn in T-bills, exceeds Q3 target This could mean that the impact of the rate cut on bank lending and economic activity will emerge gradually rather than immediately. AAG Capital said the rate cut came against the backdrop of improving economic conditions. Nigeria’s inflation rate has moderated in recent months, while real Gross Domestic Product grew by 4.43 per cent in the second quarter of 2026. The country’s external reserves also improved to $54.81bn, while the current account surplus increased to $7.54bn from $4.49bn. According to the investment firm, the improvements in inflation, economic growth and external buffers have created more room for the CBN to lower interest rates while continuing to focus on price and exchange-rate stability. The lower policy rate could have implications across Nigeria’s financial markets. AAG Capital said the new rate environment could encourage investors to extend the duration of their fixed-income portfolios as government bond yields adjust to lower short-term interest rates. Lower risk-free rates could also support equity valuations by reducing the return investors can earn from safer assets. Companies could benefit as well if borrowing costs decline, potentially reducing financing expenses and supporting earnings. However, AAG Capital said the outlook will depend on whether the recent improvements in inflation and foreign exchange stability continue. The firm identified inflation, oil prices, exchange rate movements and government borrowing needs as key factors that could influence the direction of monetary policy. It also noted that external geopolitical developments could affect the sustainability of the current easing cycle. Odinaka Anudu

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