The Central Bank of Nigeria, led by its new governor, Olayemi Cardoso, announced on Friday that it will tighten policy during the next two quarters to control inflation while ordering banks to increase capital to facilitate economic growth.
Following a run of ten straight months of rising inflation, which reached a record-breaking 27.33% in October—the highest level in about eighteen years—Cardoso, who assumed office in September, is under immediate pressure to confront the issue.
Cardoso gave bankers an overview of his main points of policy, saying that the Central Bank of Nigeria (CBN) would no longer pursue the highly criticized unconventional policies of his predecessor, Godwin Emefiele, and would no longer engage in direct fiscal interventions that have blurred the boundaries between monetary and fiscal policy and compromised the CBN’s ability to control inflation.
The implementation of an explicit inflation-targeting approach has been endorsed by the CBN, in an effort to improve the efficacy of monetary policy. In the business center of Lagos, he stated, “Details and specifications for this structure are presently being determined in conjunction with the tax authorities.
Cardoso stated that lenders needed additional cash to participate in a larger economy, and that the West African nation’s GDP may reach $1 trillion over the next seven years.
Nigeria’s $240 billion economy grew 2.5% in the third quarter of this year, hardly changing from the previous quarter, as the country’s loss-making, dominant oil sector shrank far more slowly while government reforms were still in the works.
In the fourth quarter, Cardoso predicted that the largest economy in Africa may expand by 3.9%.
“The Central Bank of Nigeria is fully committed to ensuring price stability and financial system stability,” the governor stated. “We will address weaknesses in institutional frameworks, strengthen corporate governance, enforce regulations, and put sensible policies into place.
In order to reduce inflation, Cardoso promised to control liquidity, lower interest rates, stabilize the exchange rate, and concentrate on restoring public confidence in the regulator.
“We are taking measured and deliberate steps to send the right signals to markets,” he said, assuring investors that the economy would “experience significant stability in the short to medium term as we recalibrate our policy toolkit and implement far-reaching measures.”
By doing away with a widely-liked but expensive fuel subsidy and the system of numerous exchange rates that had kept the currency artificially strong, stifled commerce, and stunted growth, President Bola Tinubu has launched Nigeria’s most radical changes in decades.
According to Cardoso, changes that have made life harder for the populace would enhance macroeconomic stability and maintain a steady currency rate.
In an effort to combat inflation, the CBN has hiked interest rates by more than 700 basis points since last year. According to Cardoso, month-over-month inflation has begun to decline, and his staff has been working on strategies to guarantee that rates continue to support the economy.
The delayed currency futures that corporates purchased from local lenders, estimated to be worth $7 billion, were settled by the central bank on November 2. When the central bank failed to make payments, banks subsequently used their own money to repay foreign credit lines.
In an effort to relieve pressure on the naira, which has been falling freely on the unofficial parallel market, Cardoso stated that at least 31 banks were paid in the first batch of settlements.
“These payments will continue until obligations are cleared,” he stated.
In line with the CBN’s goal of establishing uniform, transparent, and unambiguous regulations guiding market operations, the governor declared he would permit market forces to decide exchange rates.
“New foreign exchange guidelines will be developed, and extensive consultations will be done with banks and FX operators before implementing any new requirements,” Cardoso stated.
