Nigeria’s overnight lending rate fell by 100 basis points to 25.5% on Wednesday, traders said, after the central bank adjusted the interest rate corridor used by commercial lenders to deposit and borrow funds.
The Central Bank of Nigeria (CBN) on Tuesday cut its benchmark interest rate by 50 basis points to 27%, marking its first rate reduction since 2020, as inflation continues to ease from elevated levels.
Economists polled by Reuters had expected a 75 basis point cut, following three hold decisions this year and six hikes in 2024.
“We have seen repricing happening. Rates are down to reflect the new levels,” one trader said.
Traders noted that markets had priced in the rate cut ahead of the announcement, with yields trending lower before Tuesday. They added that excess liquidity was driving activity in the money market.
Banking system liquidity rose by 1.15 trillion naira on Tuesday to 3 trillion naira ($2.02 billion), traders said.
The central bank narrowed its interest rate corridor, lowering the standing lending facility to 29.5% from 32.5% and the deposit facility to 25.5% from 26.5%, signalling a dovish shift after inflation declined for five consecutive months through August.
“Policy rates had lagged the rally in market rates, hence the limited reaction post-MPC meeting,” said Samir Gadio, head of Africa strategy at Standard Chartered Bank.
“The market is likely trying to ascertain the pace at which monetary conditions will be relaxed further, while assessing the potential risk of OMO issuance, even though consensus is that OMO issuance may slow.”
