The International Monetary Fund (IMF) has reported that Nigerian banks increase lending rates significantly faster during monetary tightening cycles than they reduce them when policy is eased, a phenomenon the institution describes as a “rockets-and-feathers” pattern. This observation is detailed in the IMF’s June 2026 country report, Nigeria: Selected Issues, which examines the dynamics of interest rate transmission within the country’s financial system.
According to the IMF, the transmission of monetary policy in Nigeria is asymmetric. When the Central Bank of Nigeria (CBN) raises the Monetary Policy Rate (MPR), wholesale and lending rates respond sharply. Specifically, a 100-basis-point increase in the MPR leads to an immediate rise of approximately 175 to 180 basis points in Treasury bill and lending rates. In contrast, a similar reduction in the policy rate results in borrowing costs declining by only 25 to 30 basis points. This imbalance means that households and businesses face persistently high borrowing costs, even during periods of monetary easing.
The report further notes that while the interbank rate responds relatively evenly to both tightening and easing cycles, deposit rates show little movement in either direction. 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. The IMF also observed that recent reforms, including the unification of Nigeria’s foreign exchange market, have improved the pass-through of policy decisions to market rates, but the process remains incomplete.
To enhance the effectiveness of monetary policy, the IMF argues for further reforms to the CBN’s operational framework and liquidity management system. Aligning liquidity management operations with the central bank’s policy stance would reinforce the transmission mechanism, ensuring that the MPR better anchors the interbank market and influences other key interest rates across the economy. The Fund also noted 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 banking system.
These findings come amid broader economic challenges, including rising Nigeria Construction Costs, which continue to pressure project budgets and household finances. Additionally, the IMF’s analysis highlights the importance of addressing Nigeria Banks Npl (non-performing loans) as part of a stable financial environment. The report also touches on regional economic dynamics, such as those in Nigeria’s South-south &, where monetary policy impacts can vary. Meanwhile, developments like Nairametrics Nominates Mtn for industry recognition underscore the evolving landscape of financial reporting. Finally, the role of Nigeria’s National Payment system in facilitating efficient monetary transmission remains a critical area for ongoing reform.
