In a bid to revitalize Nigeria’s economy, the Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, has defended the Monetary Policy Committee’s (MPC) recent interest rate hikes, crediting them with stabilizing the naira and taming inflation.
He also unveiled an ambitious plan to double the flow of diaspora remittances into Nigeria within a year.
Taming Inflation, Stabilizing the Naira: A Necessary but Short-Term Pain
Governor Cardoso addressed the ongoing CEO Forum hosted by BusinessDay Media, where he spoke on the topic, “Revitalising Nigeria’s economy: strategic monetary policies for economic growth.”
He acknowledged the public’s concern about the impact of rising interest rates but emphasized the MPC’s commitment to curbing inflation and stabilizing the naira.
“The MPC understands that growth is crucial for the country,” Cardoso stated. “However, if the interest rate hikes hadn’t been implemented, the naira would have been on the verge of collapse. These hikes were essential to stabilize the currency.”
Cardoso stressed that the MPC, comprised of independent economic experts, makes data-driven decisions, not emotionally charged ones. “The committee’s primary focus is bringing down inflation, and they will take all necessary measures to achieve that goal,” he declared.
The MPC has aggressively raised the Monetary Policy Rate (MPR) by a total of 650 basis points in recent months, bringing it to a record high of 26.25% in May 2024. According to the Governor, these measures were crucial to curb excess liquidity in the economy.
“While these hikes are a short-term burden, they are already yielding results,” Cardoso explained. “The month-on-month inflation rate has dropped by 50% within the last 6 months, demonstrating the effectiveness of our actions.”
He acknowledged the challenges posed by the government’s reliance on “ways and means” financing from the CBN, which had ballooned to N27 trillion, along with interventions of N10.5 trillion. “These interventions have consequences, and we’re dealing with them now,” he admitted.
“However, this is a temporary situation. The MPC is committed to gradually absorbing the excess liquidity over time.”
Doubling Remittances
On a more positive note, Governor Cardoso announced the CBN’s ambitious plan to double the inflow of diaspora remittances into Nigeria within the next year. This initiative aims to address some of the pressing issues plaguing the nation’s financial sector.
“We recognize the critical role diaspora remittances play in our economy,” Cardoso stated. “As part of our efforts to address the financial sector’s challenges, I established a committee specifically dedicated to remittances during my recent visit to the World Bank meetings in Washington.”
He elaborated, “We convened a global meeting with representatives of International Money Transfer Operators (IMTOs) to discuss ways to enhance remittance flows.
Based on these productive discussions, we set a target of doubling remittances within a year. Replicating this success in other areas will propel us towards our economic goals.”
According to the World Bank, international remittances to Nigeria totaled $19.5 billion in 2023, a slight decline of 2.5% compared to the previous year. However, this figure still represents a significant 35% of the total inflows into Sub-Saharan Africa.
Tackling FX Volatility and Restoring Market Confidence
Governor Cardoso also addressed the issue of foreign exchange (FX) volatility. He explained that the CBN had to implement measures to rectify dysfunctions within the financial system, including illicit FX flows and non-compliance with regulations, to ensure market stability.
“Inevitably, some who previously benefited from these dysfunctions may resist change,” he acknowledged. “However, it’s crucial to demonstrate consistency in our approach to rebuild market confidence.”
Cardoso emphasized the importance of open communication and market transparency in restoring stakeholder faith. “We’ve eliminated the front-loading of FX requests, which has instilled confidence. Even portfolio investors who initially left the market have returned, reassured by our clear and consistent plan,” he said.
“Transparency and strong market practices are smoothing out these past dysfunctions, fostering renewed confidence.”
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If You Ask Me
Governor Cardoso’s address at the CEO Forum offered valuable insights into the CBN’s strategies for revitalizing the Nigerian economy. While acknowledging the short-term pain of rising interest rates, he emphasized their necessity in achieving long-term economic stability.
The ambitious plan to double diaspora remittances within a year presents a promising avenue to bolster the nation’s financial sector. The focus on market transparency and addressing past FX market dysfunctions demonstrates the CBN’s commitment to fostering a more robust and resilient
