The Central Bank of Nigeria (CBN) has cut the benchmark interest rate in Africa’s biggest economy to 11 percent from 13 percent on Tuesday, its first reduction in the headline cost of borrowing in more than six years.
The apex bank announced the cut at the end of its Monetary Policy Committee (MPC) meeting in Abuja on Tuesday.
Announcing the major policy shift, CBN governor, Godwin Emefiele, said MPC members had voted by a margin of eight to two in favour of the reduction.
Reuters news quoted Emefiele as saying: “We must stimulate growth,” adding that the bank’s monetary tightening cycle was over.
The bank’s monetary policy committee also decided to cut the cash reserve ratio to 20 percent from 25 percent, Emefiele said.
It also broadened its interest rate corridor to 200 basis points above the benchmark rate and 700 basis points below, which means that it will borrow from commercial lenders at 4 percent and lend to them at 13 percent.
The central bank has been injecting cash into the banking system since October in a bid to ease liquidity and stave off recession in Africa’s top oil producer, which has been hit hard by the sharp fall in crude prices over the last year.
Emefiele said some banks seemed to be using the funds to invest in bonds rather than lending to households and businesses which meant September’s cut in the cash reserve ratio had not stimulated more lending.