Nigeria’s central bank, under the leadership of Governor Olayemi Cardoso, has set an ambitious target of reducing inflation to approximately 21% while concurrently focusing on strengthening the country’s undervalued naira currency. Governor....CONTINUE READING
Cardoso is under increasing pressure to consider raising interest rates as the Central Bank of Nigeria (CBN) prepares for its rate-setting meeting next month, marking the first such meeting since Cardoso assumed office in September.
Nigeria’s central bank, silent on monetary policy since July, is causing confusion among investors who are eager to know its stance on interest rates.
Nigeria under pressure to boost rates for economic recovery, but high government debt servicing costs make further hikes less favorable. The International Monetary Fund (IMF) has advised urgent tightening of monetary policy, suggesting an increase in the Monetary Policy Rate and addressing excess naira liquidity.
In December, inflation in Nigeria surged to 28.92%, reaching its highest level in over 27 years. Governor Cardoso addressed this concern in a speech, stating that “inflationary pressures are expected to decline in 2024” due to the CBN’s inflation-targeting policy, aiming to bring inflation down to 21.4%.
He expressed optimism that improved agricultural output and the alleviation of global supply chain pressures would contribute to boosting consumer confidence and purchasing power.
The central bank’s approach under Governor Cardoso is expected to shift towards a more conventional monetary policy stance, departing from the unorthodox policies pursued by his predecessor, Godwin Emefiele. In November, Cardoso announced the adoption of an inflation-targeting framework as part of the efforts to address economic challenges. President Bola Tinubu initiated several reforms after assuming office last year, including the elimination of a petrol subsidy and easing currency trading restrictions.
Despite these reforms, Nigeria continues to face challenges such as a shortage of foreign exchange (forex) and a significant gap between official and parallel market exchange rates. Governor Cardoso acknowledged that the naira is presently undervalued and emphasized coordinated measures on the fiscal side to expedite genuine price discovery in the near term. This collaborative approach aims to contribute to achieving a more balanced and stable exchange rate.
Governor Cardoso also highlighted the central bank’s commitment to improving liquidity in the foreign exchange market. He reiterated the pledge to address outstanding forex obligations, with the central bank having already paid at least $2 billion of the estimated $7 billion owed.
