Governor of the Central Bank of Nigeria, Mr Olayemi Cardoso, has said that the apex bank’s stringent fight against inflation is centred on the people.
Cardoso who spoke at a dinner organised by the Chartered Institute of Bankers of Nigeria in Lagos on Saturday said the fight was already yielding positive results even though it needed more time to mature.
The fight, he said, had seen the financial services regulator increase its Monetary Policy Rate by 875 basis points to 27.5 per cent within the year.
Some financial experts have criticised this step, arguing that it puts businesses on the edge because of the impact on the cost of production.
However, Cardoso said the step was necessary to check the monetary expansion policies that the nation had embarked on in the previous eight years which were driving inflation.
He said, “Upon assuming office in October 2023, we prioritised reforms to rebuild Nigeria’s economic buffers and strengthen resilience. Inflation, which had surged to 27 per cent, was one of the most pressing challenges, partly driven by excessive money supply growth.
“While our GDP growth had stagnated at a meagre 1.8 per cent over the previous eight years, money supply expanded rapidly, averaging about 13 per cent growth annually. This imbalance not only fueled inflation but also contributed to a significant depreciation of the naira.
“As we all know, inflation creates uncertainty for households and businesses, acting as a silent tax by eroding purchasing power and driving up living costs.
“While these reforms have delivered progress, many Nigerians still grapple with rising costs and limited opportunities.
“From traders in Aba to farmers in Taraba, people across the country are striving to build better futures despite significant challenges.
“I want to assure you that at the Central Bank, every decision we make is driven by a commitment to serving the best interests of the people.
“This is why we will continue strengthening our internal capacity and processes to ensure our decisions remain firmly rooted in evidence based analysis.”
The governor added, “Our tight monetary policy stance has altered the previous dire trajectory, and we expect a downward trend in 2025.
“Inflation remains unacceptably high, but the signs are encouraging, particularly given that the full effects of monetary policy typically take six to nine months to impact the consumer sector. Our commitment is unwavering: we will prioritise price stability until its benefits are felt by every Nigerian.”
Painting a picture that necessitated the reforms embarked upon by the apex bank and the government in general, Cardoso said foreign exchange subsidies exceeded the much-touted fuel subsidy.
He said, “The nation was also grappling with a fiscal crisis, marked by unsustainable deficit financing through the Central Bank’s Ways and Means advances, which had reached an unprecedented N22.7tn by 2023 – equivalent to almost 11 per cent of our GDP. In addition, quasi-fiscal interventions by the CBN, totalling over N10tn, undermined market confidence and weakened the effectiveness of our policy tools.
“In the foreign exchange market, we faced a backlog of over $7bn in unfulfilled commitments and a fragmented FX regime characterised by multiple forex rates, which had encouraged arbitrage opportunities.
“This regime stifled much-needed foreign investment and led to the depletion of our external reserves which fell to $33.22bn in December 2023. It must also be understood that the cost of the FX subsidy regime is estimated to far exceed that of fuel subsidies.
“In 2022 alone, the potential revenue lost due to a less flexible FX regime was approximately N6.2tn, compared to N4.5tn from fuel subsidies. These funds could have significantly contributed to critical investments in education, healthcare, and infrastructure development.”
On short-term gains of the reforms embarked on by the government, Cardoso said the average daily turnover in the Nigerian Autonomous Foreign Exchange Market increased by 226 per cent in the first half of the year when compared to the same period in 2023.
Foreign portfolio inflows, he said, have increased by over 72 per cent during the same period, while foreign exchange reserves have risen from $32bn in May 2023 to over $40bn, the highest level in nearly three years.
According to him, the market has also supported over $9bn in capital outflows over the past year as investors were able to freely repatriate capital and dividends without the need to wait for several months as experienced in the past.
He added that an enabling policy environment had led to a doubling of monthly remittances by the Nigerian diaspora from an average of $300m in September 2023 to nearly $600m in August 2024.