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Naira Plunges as CBN Slashes Interest Rates

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  Published in Stocks and Investing on Wednesday, February 25th 2026 at 9:57 GMT by legit
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Lagos, Nigeria - February 25th, 2026 - The Nigerian Naira continues to face significant headwinds, trading at elevated levels against the US dollar. Today, the Central Bank of Nigeria (CBN) implemented a dramatic shift in monetary policy, slashing the Monetary Policy Rate (MPR) from 24.75% to 21% in a move intended to spur economic activity. However, the decision has sparked immediate debate among economists and investors, many of whom fear the rate cut could further destabilize the already fragile Naira.

For weeks, the Naira has been under considerable pressure, impacting import costs, business confidence, and overall economic stability. The strength of the US dollar, coupled with a decrease in oil revenue - historically a cornerstone of the Nigerian economy - has created a perfect storm. While the CBN has intervened in the foreign exchange market periodically, these interventions have proven insufficient to stem the tide. The current exchange rate sees the dollar commanding a premium, creating significant challenges for Nigerian businesses reliant on imported raw materials and equipment.

The CBN's rationale for the MPR reduction centers on the belief that lowering borrowing costs will encourage investment and stimulate economic growth. Governor of the CBN, Dr. Adebayo Olufemi, stated in a press conference earlier today that the bank is confident the move will unlock pent-up demand and boost productivity. "We believe that by reducing the cost of capital, we can incentivize businesses to expand, create jobs, and ultimately drive down inflation," Dr. Olufemi explained. He emphasized the need for a proactive approach to avoid a prolonged economic downturn.

However, many analysts remain skeptical. The core issue isn't necessarily a lack of access to capital, but rather a fundamental lack of confidence in the Nigerian economy. Lowering interest rates without addressing the underlying structural issues - including insecurity, infrastructure deficits, and inconsistent government policies - is unlikely to yield the desired results. In fact, it could exacerbate the situation.

"The CBN is walking a tightrope," explains Dr. Aisha Mohammed, a leading economist at the Lagos Business School. "While stimulating growth is crucial, drastically reducing interest rates in the face of a weakening Naira and persistent inflation is a risky gamble. Investors will naturally seek higher returns elsewhere, leading to capital flight and further devaluation of the Naira." She points to similar attempts in other emerging markets that backfired, resulting in currency crises and economic instability.

The potential consequences are far-reaching. A weaker Naira will increase the cost of imports, contributing to inflationary pressures. This, in turn, will erode purchasing power and negatively impact the living standards of ordinary Nigerians. Businesses may struggle to remain competitive, potentially leading to job losses and further economic hardship. The CBN's ability to manage the situation is increasingly questioned as the Naira continues its downward spiral.

The reduction in the MPR also raises questions about the CBN's commitment to controlling inflation. While Dr. Olufemi maintains that the bank remains committed to its price stability mandate, the rate cut signals a shift in priorities towards growth, even at the expense of potentially higher inflation. This strategy could prove unsustainable in the long run.

Furthermore, the move raises concerns about the effectiveness of the CBN's monetary policy tools. If interest rate adjustments fail to stabilize the Naira and control inflation, the bank may be forced to consider more drastic measures, such as capital controls, which could further damage investor confidence and stifle economic growth. Some experts are already predicting the need for a comprehensive review of the CBN's foreign exchange policy.

Several international financial institutions have also weighed in, urging the CBN to adopt a more cautious approach. The International Monetary Fund (IMF) released a statement urging the CBN to maintain a hawkish stance on monetary policy and prioritize exchange rate stability.

The coming weeks will be critical in determining the fate of the Naira. The CBN's actions will be closely watched by investors, businesses, and citizens alike. Whether the bold rate cut will ultimately stimulate economic growth or further weaken the Naira remains to be seen. The prevailing sentiment, however, is one of cautious optimism mixed with considerable apprehension.