The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, has defended the recent increase in the Monetary Policy Rate (MPR) to 27.25%, describing it as a crucial measure to control inflation and reduce the amount of excess money circulating in the economy. This decision, though tough for borrowers, is necessary for long-term economic stability, he explained.
In a statement issued by the CBN on Sunday, Cardoso elaborated on the bank’s approach to inflation during a speech at the Harvard Club of Nigeria over the weekend. “Our decision to raise the Monetary Policy Rate to 27.25% was a bold move. Higher interest rates, while painful for borrowers, are necessary to curb excess money in circulation and control inflation,” Cardoso said. He emphasized that leadership in central banking requires making difficult choices to ensure the economy’s long-term stability, even if it means short-term discomfort for some.
Cardoso’s comments come as he reflects on his first year as the head of the CBN. He highlighted that maintaining public trust is vital to the success of the bank’s policies, especially as it focuses on stabilizing inflation and rebuilding credibility within the financial system. “Trust is the currency of central banking. If the public loses trust in the institution, the efficacy of its policies diminishes,” he noted.
One of the CBN’s key initiatives under Cardoso’s leadership has been the introduction of the Electronic Foreign Exchange Matching System. This system aims to improve transparency and oversight of foreign exchange transactions. According to Cardoso, this initiative sends a strong message that the CBN is committed to promoting fair and efficient markets. “By enhancing transparency and providing more accurate oversight of forex transactions, we send a strong signal that the CBN is serious about fair and efficient markets,” he said.
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Cardoso also touched on the CBN’s controversial decision to float the naira, a move that attracted public criticism but was deemed necessary by the bank. He explained that the decision was made to align the official exchange rate with market realities and to discourage speculative trading. While this policy was met with skepticism initially, Cardoso pointed out that it has started to stabilize currency markets and curb speculative activity.
Despite the CBN’s efforts, Cardoso acknowledged that the country has not yet fully met its inflation targets. However, he expressed optimism based on recent data from the National Bureau of Statistics (NBS). “Recent reports from the NBS showed that inflation began to decline in July and August 2024,” he noted, suggesting that the bank’s policies are gradually steering the economy in the right direction, though challenges remain.
In summary, the CBN’s decision to raise interest rates and implement key reforms, such as floating the naira and enhancing foreign exchange transparency, are part of a broader strategy to stabilize Nigeria’s economy. While these moves may be tough in the short term, Cardoso remains confident that they are necessary for long-term economic recovery.