The CBN Is the Thermometer. Here Is the Fever

If Nigeria wants lower interest rates, we need to stop looking at the CBN

Governor Cardoso — with the greatest of respect — it is not you.

I can already see some people Googling my credentials. Save the data. I studied economics before I became an accountant, and economics — unlike most things you study — never quite leaves the bloodstream. I am not claiming omniscience. I am claiming a view. And the view is this: if we really want lower interest rates, the CBN Governor is not the person to look to.

With the greatest of respect to Governor Cardoso, the room where Nigeria’s interest rate is actually set is not in Abuja. It is in the save-or-spend decisions households and companies make and whether we trust the institutions enough to leave money there.

Let me explain. And I will keep it simple, because this is one of those topics where jargon makes people feel they cannot have a view. You can.

How Interest Rates Are Actually Set

The CBN Governor announces a rate after a committee meeting. But here is the thing the commentary almost never says clearly: The Monetary Policy Committee  does not decide that number.  It is read  from the underlying condition of the Nigerian economy, the way a doctor reads a temperature from a thermometer. The thermometer did not cause the fever. It is reporting it.

Two things cause the fever. Inflation is the first and most visible — and yes, with Nigeria’s rate still at 16% and ticking upward again, the CBN’s decision to hold this week was correct. You do not cut into rising inflation and call it progress.

But the deeper driver, rarely discussed is the savings pool.

The Pool Nobody Talks About

Interest rates, at their most basic, are the price of borrowed money. Like the price of anything, they are determined by supply and demand. When the supply of money available to lend is large, the price of borrowing falls. When the supply is thin, the price rises.

The supply of loanable money comes from savings — specifically, savings formally deposited into the financial system: bank accounts, pension funds, insurance products. That stock is what economists call broad money. Its size, relative to the economy, tells you almost everything you need to know about why rates are where they are.

To have low interest rates, countries need high broad money  and low inflation.

Country	Broad Money (% of GDP)	Inflation Rate	Benchmark Rate
Nigeria	30%	16%	26.5%
Ghana	21%	3.4%	14%
South Africa	74%	3.2%	6.75%
United Kingdom	144%	2.8%	3.75%

Sources: IMF Sub-Saharan Africa Regional Economic Outlook; World Bank Development Indicators; respective central bank decisions; national statistics offices. All figures current as of May 2026.

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Read that table slowly. From top to bottom, it repeats a consistent story. The deeper the formal savings pool and the lower the inflation, the cheaper the money. 

Ghana’s savings pool remains relatively shallow by international standards, much closer to Nigeria than to South Africa or the  UK. Then Ghana delivered fifteen consecutive months of falling inflation, bringing it down from a crisis peak of 54% in 2022 to 3.4% today. Its central bank cut the rate from above 25% down to 14% in direct response. The savings pool did not change. The inflation did. And the rate followed.

Which means that if we continue battling inflation there will be scope to cut, but I daresay that unless we can increase savings,  in an economy of our size, it won’t make the type of impact we need.

Governor Cardoso could reduce the MPR tomorrow and the structural problem would remain. Banks would still face a thin pool of loanable funds, price in inflation risk, and  charge accordingly. The MPR is the ceiling of the room. The savings pool and the inflation environment are the foundations. You cannot raise the ceiling without first building the foundations.

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Why Nigerian Money Never Stops Moving

Nigerian money moves too fast to pool. And the reasons run deep.

The moment income lands in a Nigerian account, it is already allocated — often several times over. The overdue rent, the school fee. It is part of what I mentioned last week as bukata economics,  but deeper than that is habit.

And this is not just individuals. If you want to see the Usain Bolt of money velocity, come to government. (Another story for another day, but let’s just say that if you want to create new and lasting enemies,  try being a Finance  Commissioner — or worse, Minister — unable or unwilling to release funds quickly.)

Even the savings mechanisms we have built for ourselves are not really designed to accumulate. They are designed to enable spending.

Consider the ajo. It is a remarkable institution — disciplined, trusted, consistent in a way that formal banks have repeatedly failed to be. But look at what actually happens, the person whose turn it is almost never sits on that lump sum. They were waiting for it to buy something. The ajo is not a savings vehicle in the way economists mean when they talk about capital formation. It is a consumption-smoothing device. It takes income that arrives in small, irregular amounts and bundles it into a lump sum large enough to make a purchase that would otherwise be out of reach. It circulates money with great efficiency. It does not accumulate it.

It’s the same pattern: money arriving, money moving, money serving an immediate purpose, never pausing long enough to become the raw material of cheap credit for someone else.

This is not a criticism of how Nigerians manage money. It is a description of a rational system under genuine structural pressure. When income is tight, dependants are many, institutions are unreliable, and a lump sum finally arrives, you use it. Of course you do. Every time a bank has failed, a ponzi scheme collapses, or currency notes changed colour abruptly, Nigerians received the same rational signal: keep your money close and moving. Velocity is the defence mechanism of a population that has learned, across generations, not to trust the pool.

What Would Actually Change This

If Nigeria’s rates reflect a shallow savings pool and elevated inflation, the action agenda is clear. It is not a rate cut. It is pool-deepening. And the most important insight about pool-deepening in Nigeria is this: you cannot get there through the formal sector alone, because 80% of Nigerian jobs are in the informal and SME economy. These workers have no pension deduction, no health insurance contribution. They are entirely outside the mechanisms that automatically deepen the savings pool.

The path to lower interest rates and a deeper pool therefore runs directly through the formalisation and growth of Nigeria’s small businesses. Not just in number but in size. A business that crosses that line does not just become a commercial success. It becomes a node in the national savings architecture. Its workers enter the pension system. They acquire formal credit histories. They begin to appear in the data that banks use to price risk. Multiply that across thousands of SMEs and you begin to see how the structural interest rate actually moves.

I should mention at this point — forgive the shameless plug — that this is precisely what Nidacity, my social enterprise, is trying to do. The work of identifying, supporting, and growing Nigeria’s SME base is not just a development objective. It is, if the argument above is right, one of the most direct routes available to us toward the interest rate environment that every MPC statement demands but no MPC vote can deliver.

Lest I forget, compel the State Governments to comply and you begin to see progress. The pension system matters enormously here, but not in isolation. The Contributory Pension Scheme introduced in 2004 was the right architecture, and pension assets have grown to around ₦22 trillion. But that is still only around 5% of GDP. Ghana, whose contributory pension system postdates Nigeria’s by four years, has already grown pension assets to roughly 20% of GDP. The scheme is not the problem. The pipeline is. Formalisation feeds the scheme. Without it, the architecture sits waiting for contributors who never arrive.

Savings policy has a supporting role to play, and it does not require waiting for full formalisation. South Africa has been building savings incentive infrastructure for decades — including a tax-free savings account introduced in 2015 — and its formal savings pool now sits at 74% of GDP, more than double Nigeria’s. India has run a government-backed tax-free savings scheme for small savers since 1968, and its pool is now approaching 90% of GDP. Neither achieved this overnight. Both made a deliberate, sustained decision that patient money deserved a reward. Why can’t a low income earner get N300 for every N1000 saved over a qualifying period? Or freedom from bank charges if  small money stays still?   Nigeria has not yet made that decision. It could.

A Final Word

Every MPC meeting, the pattern repeats. Statements are released. The Governor is urged to cut. I understand the frustration. The rates are genuinely painful. I am not dismissing that.

But the business associations and manufacturers’ federations who spend energy on those statements might ask themselves another question: what would it take to formalise one more business in your supply chain this year? To bring one contractor, into the formal financial footprint that gradually and structurally deepens the pool?

Those conversations — unglamorous, unannounced, generating no press conferences — are the ones that actually move Nigeria’s interest rate. Slowly. Permanently.

Governor Cardoso is doing what a good thermometer does. He is reading the temperature accurately. The temperature will fall when the fever breaks. Ghana broke it through fifteen months of hard disinflation. Nigeria is doing that work now. But the second task — deepening the pool — does not happen in Abuja on MPC meeting days. It happens when one more Nigerian business formalises, and adds new monthly drops to the pool that has been too shallow for too long.

Start there.

Kemi Adeosun is a former Minister of Finance of the Federal Republic of Nigeria and former Commissioner for Finance of Ogun State. She is the founder of Nidacity.com and the Dash Me Foundation. She writes from Lagos.