In a significant development, Nigeria’s central bank, led by Governor Olayemi Cardoso, is set to implement a robust policy framework over the next two quarters.
The primary objective is to effectively manage the persistent challenge of inflation while simultaneously urging banks to strengthen their capital positions, fostering economic growth.
Cardoso, who assumed office in September, is under immediate pressure to address inflationary concerns that have escalated for ten consecutive months, reaching an alarming 27.33% in October, the highest in nearly 18 years.
Cardoso’s strategic vision includes a departure from direct fiscal interventions, a practice that blurred the lines between monetary and fiscal policy, negatively impacting the central bank’s ability to manage inflation.
This move marks a departure from the unconventional policies pursued by his predecessor, Godwin Emefiele.
The central bank has approved the adoption of an explicit inflation-targeting framework, signaling a commitment to enhancing the effectiveness of monetary policy. The details and requirements for this framework are currently being finalized in collaboration with fiscal authorities.
Governor Cardoso envisions Nigeria’s economy reaching $1 trillion over the next seven years, emphasizing the need for financial institutions to fortify their capital to participate in a larger economy.
The nation’s $240 billion economy recorded a modest third-quarter growth of 2.5%, with expectations of further growth in the fourth quarter, potentially reaching 3.9%.
Cardoso’s commitment extends to ensuring price stability and financial system stability.
He outlined a comprehensive approach to address institutional deficiencies, restore corporate governance, strengthen regulations, and implement prudent policies.
Rebuilding trust within the regulatory framework, managing liquidity to curb inflation, lowering high-interest rates, and stabilizing the exchange rate are key components of Cardoso’s strategy.
Amid President Bola Tinubu’s bold reforms, including the elimination of a costly subsidy on petrol and the overhaul of multiple exchange rates, Cardoso anticipates that these measures, while causing short-term hardships, will contribute to a stable exchange rate and improved macroeconomic stability.
The central bank has raised interest rates significantly, over 700 basis points since the previous year, to combat inflation.
Cardoso reports a positive trend with month-on-month inflation showing signs of decline, attributing this progress to the measures implemented by his team.
In a bid to address outstanding currency forwards, estimated at approximately $7 billion, the central bank initiated settlements on November 2.
This move aimed to relieve pressure on the naira, which had experienced a free fall on the unofficial parallel market. Cardoso assured that these payments would continue until obligations are cleared.
Looking ahead, Governor Cardoso expresses his commitment to allowing market forces to determine exchange rates.
The central bank aims to establish clear, transparent, and harmonized rules governing market operations.
He anticipates developing new foreign exchange guidelines through extensive consultations with banks and FX operators before implementing any new requirements.
As the nation navigates these comprehensive reforms, investors are assured of significant stability in the short to medium term.
Governor Cardoso’s recalibration of the policy toolkit and implementation of far-reaching measures reflect a strategic vision aimed at addressing current economic challenges and fostering sustained growth.
