Nigeria's central bank cut its key lending rate for the first time since 2020 on Tuesday, lowering it by 50 basis points as inflation is falling from very high levels.

The move takes the Central Bank of Nigeria's Monetary Policy Rate to 27%. 

Economists polled by Reuters had predicted a 75 bps cut, following three "hold" decisions so far this year and six hikes in 2024.

The rate cut was predicated on projections for declining inflation for the rest of the year and the need to support the economy, central bank governor Olayemi Cardoso said.

The Monetary Policy Committee "will remain proactive through a data-driven policy response," he continued, adding that the committee was satisfied with improving macroeconomic indicators.

Data on Monday showed economic growth picked up to 4.23% year on year in the second quarter, its quickest pace in about four years.

Headline inflation slowed to 20.12% year-on-year in August, its fifth consecutive drop, and the naira has strengthened about 3% against the dollar this month after being broadly stable through July and August.

Cardoso said the central bank wanted to see inflation in single digits.

Inflation in Africa's most populous country scaled repeated 28-year peaks last year, spurred by President Bola Tinubu's moves to devalue the naira and cut subsidies since taking office in 2023.

But it has been on a downtrend trajectory this year after the statistics office revised its base year and adjusted the weight of items in its price index.

Capital Economics analyst David Omojomolo said in a research note that he expected an aggressive easing cycle ahead, with a further 700 basis points of cuts to the central bank's policy rate by the end of next year.