One year ago, Olayemi Cardoso, Central Bank of Nigeria (CBN) governor, gave a landmark speech at the Bankers’ Dinner organised by the Chartered Institute of Bankers of Nigeria (CIBN).
It was his first policy speech after becoming governor two months earlier, so he seized the moment to highlight some of the goals he intended to achieve.
“Our monetary policies will aim to achieve price stability, foster sustainable economic growth, stabilise the exchange rate of the naira, and reduce interest rates to facilitate borrowing and investments in the real sector,” he said.
“We envision that, with discipline and focused commitment, foreign exchange reserves can be rebuilt to comparable levels with similar economies.”
Cardoso assured stakeholders that through targeted policies, transparent market operations, effective monetary and fiscal coordination, and a commitment to rebuilding trust, the CBN will tackle these pressing issues.
Inflation Control
Has Cardoso achieved these targets? Since Cardoso’s inaugural speech on November 25, 2023, inflation has risen from 28.20 percent to 33.88 percent, according to data from the National Bureau of Statistics (NBS). Inflation, which had already reached 27 percent at the time of Cardoso’s appointment, remains one of the most significant challenges facing Nigeria, largely driven by excessive money supply growth.
In response, the Cardoso-led Monetary Policy Committee (MPC) has raised the Monetary Policy Rate (MPR) by 875 basis points to 27.5 percent in 2024 to battle inflationary pressures and stabilise the economy.
“Inflation remains unacceptably high, but we are starting to see positive signals. Given that the effects of monetary policy typically take 6-9 months to filter through to the consumer sector, our commitment to price stability remains unwavering,” Cardoso stated.
He reaffirmed that achieving price stability is a top priority to benefit every Nigerian.
Despite the assurances, headline inflation has continued to rise on the back of money supply, high food and petrol prices.
While the Cardoso-led CBN believes in the use of interest rates to rein in inflation, several economists and manufacturers say this strategy has stifled the real sector’s capacity to access growth funds.
“The Manufacturers Association of Nigeria (MAN) is worried about the implications of the continuous rate hikes on the productive sector and earnestly expects the CBN to stop the rate hike but explore more of the monetary-fiscal policy handshake option to curb inflation,” said Segun Ajayi-Kadir, director-general of MAN in a September statement.
Exchange Rate Reforms
Between November 2023 and much of 2024, the naira experienced significant depreciation. At the time of Cardoso’s first public speech as CBN governor, the dollar traded at N956.33 at the Nigerian Autonomous Foreign Exchange Market (NAFEM). As of Friday, December 6, it traded at N1,535. In the black market, the naira has depreciated by 24 percent, moving from N1,150 per dollar to N1,515.
Cardoso attributed the naira’s challenges to a backlog of over $7 billion in unfulfilled FX commitments and a fragmented foreign exchange regime that fostered arbitrage opportunities. This system depleted Nigeria’s external reserves to $33.22 billion by December 2023 and cost the nation an estimated N6.2 trillion in lost revenue in 2022, compared to N4.5 trillion lost to fuel subsidies.
“We have undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency,” Cardoso said.
He noted that the FX unification has enabled the clearing of outstanding FX obligations, giving businesses—including manufacturers and airlines—the confidence to plan and invest. To further boost the foreign exchange market, the CBN recently introduced the Bloomberg Electronic Foreign Exchange Matching System (EFEMS), a platform widely regarded for its effectiveness in other markets.
Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank, said that EFEMS is expected to enhance transparency and provide the CBN with a clearer understanding of FX demand, potentially leading to greater currency stability.
Despite past challenges, the naira appreciated to N1, 515 per dollar in the parallel market last Friday as traders offloaded dollars in response to the CBN’s new foreign exchange framework. In the official market, the naira also gained 2.08 percent, or N32, closing at N1,535 compared to Thursday’s rate of N1,567, according to CBN data.
Reserves are rising
Nigeria’s foreign reserves stood at $33.28bn recorded on September 18, 2023, the month Cardoso was appointed CBN governor. As of November 2024, the reserves stood at over $40 billion, marking their highest level in almost three years.
Business Environment and Sectoral Challenges
The CBN’s reforms aim to restore investor confidence and create a foundation for long-term growth, but significant challenges persist in the business environment. Aloysius Uche Ordu, a member of the Monetary Policy Committee (MPC), emphasised that resolving Nigeria’s economic difficulties requires a strong and sustained commitment to addressing inflation.
Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise (CPPE), expressed concerns over the CBN’s continuous monetary tightening despite weak growth in critical economic sectors.
The GDP sectoral performance report for the third quarter of 2024 highlighted disparities, with the financial services sector growing by 32 percent, while agriculture and manufacturing recorded minimal growth rates of 1.14 percent and 0.92 percent, respectively.
Yusuf warned that the MPC’s hawkish stance risks deepening these disparities. Sectors such as agriculture, manufacturing, and real estate require monetary and fiscal support rather than stricter monetary conditions. He urged the CBN to expand its support for development finance institutions to alleviate financing challenges created by the tight monetary policy regime.
Cardoso acknowledged these concerns and called for banks to play a more proactive role in driving economic recovery.
“An FX market cannot depend solely on when and how the Central Bank intervenes. Banks must step up as market makers, offering solutions that enable businesses to thrive and manage risks effectively,” he stated. (BusinessDay)
