The International Monetary Fund’s (IMF) has decried the slow pace at which Nigerian banks reduce lending rates when monetary policy is eased, compared to how fast they increase it, when the Central Bank of Nigeria (CBN) tightens the monetary policy .
In its June 2026 country report, Nigeria: Selected Issues, the IMF said interest rate transmission in Nigeria follows a “rockets-and-feathers” pattern, where borrowing costs rise rapidly during tightening cycles but fall only gradually during periods of monetary easing.
It noted that while recent reforms, including exchange rate unification, have improved the transmission of monetary policy to market rates, the process remains incomplete, calling for further reforms to the CBN’s operational framework and liquidity management system.
The IMF noted that monetary policy tightening by the CBN has a disproportionately large impact on wholesale and lending rates.
It pointed out that a 100-basis-point increase in the Monetary Policy Rate (MPR) leads to an immediate increase of about 175 to 180 basis points in Treasury bill and lending rates, however, a similar reduction in the policy rate results in borrowing costs declining by only 25 to 30 basis points.
The report also found that while the interbank rate responds relatively evenly to both tightening and easing cycles, deposit rates show little reaction in either direction.
According to the IMF, this suggests that monetary policy transmission in Nigeria operates more through changes in lending and wholesale rates than through deposit rates, limiting the speed at which lower policy rates translate into cheaper borrowing costs for households and businesses.
The Fund also observed that the pass-through of policy decisions to market rates has improved since the unification of Nigeria’s foreign exchange market but remains only partial.
The IMF argued that strengthening the CBN’s operational framework would improve the effectiveness of monetary policy by ensuring that the MPR better anchors the interbank market and influences other key interest rates across the economy.
According to the report, aligning liquidity management operations with the central bank’s policy stance would reinforce the transmission mechanism.
The Fund also pointed to Nigeria’s relatively high Cash Reserve Ratio (CRR), currently set at 45% for deposit money banks, as an area requiring reform.
It noted that as inflation moderates over the medium term, the nominal policy rate should decline, reducing the cost of liquidity management and creating room for a gradual reduction in reserve requirements.
The IMF further argued that lower and more stable inflation would strengthen confidence in the naira, reduce dollarisation pressures, and increase demand for local currency in both circulation and bank deposits.
Higher demand for the naira, it said, would help reduce structural excess liquidity in the financial system and support a gradual easing of the CRR over time.
