Nigeria’s Central Bank under Governor Olayemi Cardoso is implementing radical reforms, moving from interventionist strategies to strict monetary control to combat escalating inflation and currency depreciation. These changes come amidst fears of economic turmoil but aim to restore investor confidence and macroeconomic stability. The ongoing efforts reflect a delicate balance between monetary accountability and required structural shifts to ensure sustainable growth.
Nigeria is currently navigating through a critical economic transformation, largely steered by its central bank under the leadership of Governor Olayemi Cardoso. This shift comes after years of unconventional monetary policies and interventions. Since taking office in September 2023, Cardoso has initiated one of the most intense reforms in the Central Bank of Nigeria’s history, transitioning the bank from a development finance-oriented approach to one focused on strict monetary control. The economic backdrop features soaring inflation and currency issues, presenting substantial challenges yet, advocates believe these measures could pave the way for a more stable macroeconomic future.
The previous central bank regime, led by Godwin Emefiele, leaned heavily on an interventionist monetary policy strategy. This approach often mingled fiscal responsibilities with monetary ones, which muddled the economic landscape. With Cardoso’s appointment, a shift has been made. In an April 2024 address, he remarked, “Monetary policy is necessary but not sufficient,” indicating a turn towards a more controlled economic strategy characterized by transparency and data-centric decision-making.
This transformation manifested rapidly in 2024, as the Monetary Policy Rate saw a significant jump from 18.75 percent to 24.75 percent in just two months, aimed at tackling inflation that had reached a staggering 30-year high of 33.69 percent by April. Alongside this, the Cash Reserve Ratio was raised to a hefty 45 percent, placing Nigeria among the highest globally in terms of liquidity constraints. Cardoso noted, “These decisions are not easy, but they are necessary to restore confidence in the monetary system.”
The inflation crisis in Nigeria has multiple facets, including rampant insecurity in agricultural areas which has hampered food production and exacerbated food inflation, now at approximately 40.53 percent. Additionally, the removal of fuel subsidies in May 2023 raised transport costs significantly, further escalating inflation concerns. Another major shift happened in June 2023 when Nigeria unified its exchange rate windows, a long-delayed reform, resulting in the naira depreciating sharply from N460 to the dollar to over N1,300 by April 2024. Nowadays, the exchange rate stands at N1,638 per dollar as of May 2025.
The CBN stepped back from being the dominant player in foreign exchange, allowing market dynamics to influence pricing more directly. While this approach initially stirred volatility, recent weeks show signs of stabilization as the currency’s parallel market premium has contracted and foreign investors are beginning to show interest again.
Communication from the CBN under Cardoso has notably improved, now characterized by detailed and timely disclosures following quarterly Monetary Policy Committee meetings, something that had previously been lacking. High-level dialogues between monetary authorities and fiscal officials aim to align tighter monetary approaches with ongoing fiscal reforms designed to manage budget deficits and attract foreign investments.
Nevertheless, there are limits to what monetary policy can achieve. Cardoso acknowledged that “Monetary policy alone cannot resolve inflation driven by structural issues,” reflecting widespread economic sentiment including criticism from noted economist Professor Pat Utomi, who emphasizes the importance of addressing underlying economic challenges beyond mere interest rate adjustments.
In January 2024, the CBN rolled out a major recapitalization directive, requiring Tier 1 banks to boost their capital to N500 billion and Tier 2 banks to reach N200 billion as a cushioning measure against economic shocks and to elevate their global competitiveness. Additionally, new regulations aimed at Nigeria’s burgeoning fintech sector were implemented to mitigate systemic risks in this rapidly evolving financial landscape.
Early outcomes of these sweeping reforms have brought mixed results. On one hand, improvements are being seen with restored policy credibility and the alleviation of longstanding market distortions, such as the clearance of a $7 billion foreign exchange backlog. External reserves have stabilized around $33 billion, providing several months of import cover. On the other hand, the adverse impact on the economy is evident, with prime lending rates soaring to 28–30 percent and some reaching above 35 percent. Consequently, credit availability has tightened and the manufacturing sector is feeling the crunch from high borrowing costs, evident with a Purchasing Managers’ Index below the critical mark of 50.
GDP growth has decelerated to 2.31 percent in the first quarter of 2024, down from 3.46 percent in the preceding quarter, falling short of the population growth rate. This means Nigerians might experience declining income levels, with over 60 percent of the populace already categorized as living in poverty.
Ultimately, while the CBN’s reforms are bold, they are not panaceas. The trajectory of success hinges greatly on future actions. Sustainable changes in agriculture, infrastructure, oil production, and fiscal responsibility are vital to prevent economic stagnation intertwined with inflation. International watchers remain cautiously hopeful. An International Monetary Fund economist stated, “Nigeria is doing the hard work now, but whether it pays off depends on consistency and political will.”
As we look forward, the coming year will be crucial in testing the resilience of Cardoso’s strategies. The CBN aims to balance restoring economic stability without inciting a contraction. Cardoso recently remarked, “Nigeria’s path is not linear. But with discipline and coordinated action, the foundation we lay today can support a future of sustained, inclusive growth.” Thus, while the CBN’s tight monetary policies and reform measures are significant in nature, it is essential they translate into observable benefits in the lives of ordinary Nigerians as the country embarks on a crucial economic restructuring journey.
In summary, Nigeria’s central bank is embracing a transformative yet challenging path under Governor Olayemi Cardoso. The shift from expansive, activist monetary policy to a more orthodox and transparent approach intends to tackle pressing inflation and currency challenges. Initial reforms show promise in restoring market credibility, but they also bring considerable economic strain. The future will require strategic follow-up actions in structural reforms to ensure long-term stability and growth in Nigeria’s economy. Success will likely be assessed not only in macroeconomic metrics but in the lived experiences of Nigerian citizens.
Original Source: punchng.com
