In my this week column, I look at the Central Bank of Nigeria’s decision to cut the country’s main interest rate for the first time in five years from 30 percent to 27 percent. On the surface, this looks like good news. Government officials say it means borrowing money will now be cheaper, businesses will grow, and the economy will improve. But the real question is: will this actually reduce the suffering of ordinary Nigerians?
First, let us understand what this interest rate really means. The Monetary Policy Rate (MPR) is the rate at which the Central Bank lends to commercial banks. Think of it as the “master rate” or “anchor rate.” When the Central Bank cuts it, the idea is that commercial banks should also lower the rates they charge when lending to people and businesses. That way, someone who needs a loan to start a shop, expand a farm, or buy equipment for a small factory can borrow money more cheaply. In theory, this creates more jobs and puts more money in people’s hands.
This is exactly how many countries respond to economic problems. For example, after the global financial crisis in 2008, central banks in America, Europe, and Asia slashed their rates so low that people could borrow almost for free. It helped their economies bounce back.
But Nigeria is not America or Europe. Here, the story is very different. Nigerian banks hardly follow the Central Bank’s signal. Even when the MPR was 30 percent, most banks were already charging borrowers between 32 and 35 percent interest. In other words, the official cut may look dramatic, but banks are under no pressure to make loans cheaper for ordinary people. Instead, they often prefer to lend money to the government by buying treasury bills and bonds, which are safe and highly profitable. It is easier to lend to Abuja than to take risks on farmers, traders, or small business owners.
There is another problem. Nigeria’s high prices (inflation) are not caused only by the cost of borrowing money. They are caused mainly by structural issues. Food prices are high because insecurity stops many farmers from going to their fields. Transport is expensive because our roads are bad and fuel prices keep changing. Factories struggle because electricity is unreliable and they have to import raw materials at high costs. Cutting interest rates does not solve any of these problems. A three-point reduction in the MPR does not magically make garri, bread, or transport fares cheaper.
This is why Nigerians often laugh when governments announce “economic progress.” In 2005, we were told debt relief was the turning point. In 2013, GDP rebasing was celebrated, and we were declared Africa’s biggest economy. Under Buhari, rice pyramids were arranged for photo opportunities. Now, a small cut in the interest rate is being marketed as recovery. But ordinary citizens do not spend GDP rebasing or rice pyramids; they spend naira at the market. What matters is whether that naira buys more food, pays for transport, or eases rent.
There are also risks. If banks suddenly start giving out loans at lower rates, but the country is not producing enough goods and services, then too much money will chase too few goods. The result will be even higher inflation. Nigeria has been here before. In the 1990s, reckless lending led to many banks collapsing and depositors losing their savings. Another risk is that banks will simply keep lending at the same high rates, pocketing the benefits for themselves, while the people see no change at all.
So what should Nigerians look for in the coming months? Three things only. One: whether food inflation actually goes down. Two: whether banks truly reduce their lending rates in practice, not just in theory. Three: whether businesses are able to borrow, expand, and employ more people. If these things do not happen, then the interest rate cut is just another fine announcement that looks good in Abuja but changes nothing in people’s lives.
For President Tinubu, this is more than an economic gamble. It is political. His government has asked Nigerians to endure pain from subsidy removal and currency reforms, promising that better days are coming. But if this pain does not translate into relief, patience will run out. Governments are not judged by communiqués or statistics; they are judged by what citizens feel in their pockets and see in their markets. Until garri, rice, bread, and transport become affordable again, Nigerians will continue to wonder aloud: did this interest rate cut ease our burden, or is it just another number in Abuja’s endless record books?
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