Nigeria’s Central Bank, led by Olayemi Cardoso, is shifting towards stricter monetary control amidst high inflation and currency devaluation. Recent policies include a significant increase in the Monetary Policy Rate and tighter liquidity, aimed at stabilizing the economy. Addressing structural issues, such as insecurity and subsidy removal, is crucial moving forward. The effectiveness of these reforms will depend on sustained efforts and broader systemic changes to enhance economic growth for Nigerians.
Nigeria is experiencing significant economic changes, spurred on by its central bank under Governor Olayemi Cardoso, who took office in September 2023. The Central Bank of Nigeria (CBN) has shifted gears from the previous administration’s focus on expansive monetary strategies, moving towards stricter control measures. This transformation is aiming to tackle inflation challenges and currency depreciation while addressing the structural weaknesses that have long plagued the economy.
Inflation in Nigeria is at a staggering 33.69% as of April 2024, a 30-year high. Cardoso’s administration wasted no time in making bold policy changes, hiking the Monetary Policy Rate from 18.75% to 24.75% within just two months. In addition, the Cash Reserve Ratio was lifted to 45%, among the highest globally—a move aimed at tightening liquidity and restoring confidence in the monetary system.
The CBN’s previous approach under Godwin Emefiele, Cardoso’s predecessor, was marked by a more interventionist style that often blurred the lines between fiscal and monetary policies. Cardoso, however, recognized the need for clear, data-driven strategies, asserting that “Monetary policy is necessary but not sufficient” in addressing Nigeria’s economic woes.
Difficulties persist, tied to insecurity across agricultural regions, the removal of fuel subsidies, and currency volatility. For example, food inflation now sits at 40.53%, exacerbated by insecurity in farming areas. The subsidy roll-back in mid-2023, intended to alleviate budget pressures, instead caused transportation costs to soar—adding fuel to the inflation fire.
One of the most significant recent changes was the unification of Nigeria’s multiple exchange rates. This has led to a sharp devaluation of the naira, which fell from N460 to over N1,300 against the dollar by April 2024, and currently trades at about N1,638/$ as of May 2025. The CBN’s reduced role in the foreign exchange market is adding to market forces’ influence, albeit with initial volatility seen in the value of the naira.
Governor Cardoso has pushed for better communication from the CBN. Quarterly Monetary Policy Committee meetings are now more thorough, featuring detailed data and media briefings. This openness aims to clear the mixed signals and confusion that characterized past communications. Coordination with fiscal authorities has been improved, aligning monetary tightening strategies alongside fiscal reforms needed to attract foreign investment.
However, Cardoso has cautioned that monetary policy alone cannot rectify inflation escalated by structural issues. As quoted, “Monetary policy alone cannot resolve inflation driven by structural issues,” mirroring the skepticism posed by economists like Professor Pat Utomi regarding the efficacy of interest rate hikes without addressing root causes, such as security and infrastructure.
In a strategic move to bolster the banking sector’s resilience, the CBN mandated that Tier 1 banks raise their minimum capital to N500 billion. This aims to cushion against potential shocks while enhancing competitive standards globally. Additionally, regulations around the fintech sector have been tightened with new compliance measures introduced—reflecting a proactive stance against systemic financial risks.
While there are early signs of progress, such as stabilizing external reserves, the repercussions have been notable. Borrowing costs have spiked; prime lending rates now hover around 28-30%, with some reports saying they’ve crossed 35%. This means tighter credit for the private sector, causing the manufacturing sector to contract, mirrored in a Purchasing Managers’ Index that now sits below 50.
GDP growth is stalling, dropping to 2.31% in Q1 2024 versus 3.46% in the previous quarter, signaling stark challenges as population growth surpasses economic expansion. This is troubling, especially for a country where over 60% of citizens already live below the poverty line.
Looking ahead, the CBN’s approach remains an ambitious undertaking. While short-term sacrifices might be necessary, long-term stability hinges on thorough structural reforms—like enhancing agricultural productivity and improving infrastructure. All of this must be done to stave off stagflation, a precarious situation combining slow growth and high inflation.
International observers remain cautiously optimistic. One senior economist at the IMF noted, “Nigeria is doing the hard work now, but whether it pays off depends on consistency and political will.” The coming year will undoubtedly put Cardoso’s strategy to the test as the central bank aims to balance macroeconomic stability with the risk of recession.
As Nigeria forges ahead in restructuring its economic framework, the outcome of these policy changes will be assessed not merely through numbers, but by how they translate into tangible improvements in the lives of everyday Nigerians.
In conclusion, Nigeria’s monetary and economic landscape is undergoing significant changes under the leadership of Governor Olayemi Cardoso. While aggressive policies may cause short-term turbulence, they seek to establish a foundation for future stability and investor confidence. The success of this recalibration will require not only persistent efforts within the central bank but also broader structural reforms to uplift the economy’s fundamentals. The journey ahead is undoubtedly challenging, but it may bring about essential improvements for the citizens’ overall economic wellbeing.
Original Source: punchng.com