Yemi Cardoso, the governor of the Central Bank of Nigeria (CBN), has admitted that the interest rate increase to 27.25% is “painful” for borrowers, but he has also emphasized that the move is required to effectively control inflation and lessen the amount of surplus money in circulation.
Cardoso said this at a speech on the subject of “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation” to the Harvard Club of Nigeria in Lagos over the weekend.
According to the head of the CBN, the central bank is aware that being a leader means making tough choices that would guarantee stability over the long run rather than putting comfort first.
“Our decision to raise the Monetary Policy Rate (MPR) to 27.25% was a bold move. Higher interest rates, while painful for borrowers, are necessary to curb excess money in circulation and control inflation.
“Leadership is about making hard choices to secure long-term stability over short-term comfort in moments like these
“Leading through challenging times means avoiding the temptation to take on too many initiatives. The Central Bank must focus on its core mandate—price stability. It is easy to become distracted by various political and economic pressures, but as a leader, one must prioritize,” Cardoso stated.
He said that the bank should not be influenced by political or economic forces, but should instead continue to concentrate on its primary responsibility of maintaining price stability.
Rebuilding Faith In CBN
Moreover, Cardoso clarified that restoring confidence in the system and markets is the primary goal of the CBN’s new leadership.
He went on to say that the introduction of the Electronic Foreign Exchange Matching System (EFEMS) for foreign exchange transactions and the emphasis on policy openness are results of this commitment.
Cardoso claims that because of these initiatives, market speculation and arbitrage have decreased as participant trust is progressively rebuilt.
“Trust is the currency of central banking. If the public loses trust in the institution, the efficacy of its policies diminishes.
“Our decision to implement the Electronic Foreign Exchange Matching System (EFEMS) is rooted in this understanding.
“By enhancing transparency and providing more accurate oversight of forex transactions, we send a strong signal that the CBN is serious about fair and efficient markets,” Cardoso explained.
What To Note
As of July 2024, just 36.3% of Nigerian households were in favour of hiking interest rates in order to combat inflation, according to Nairametrics.
The poll also showed that, in spite of growing inflation, 50.6% of participants favoured lower interest rates, with 13.1% remaining unsure.
This distinction highlights the difficulty the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) faces in striking a balance between the public’s desire for lower borrowing costs and the control of inflation.
Five interest rate increases have been carried out by the CBN’s MPC under Yemi Cardoso’s direction.
The rate was first raised to 22.75% from 18.75%, then again to 24.75% and 26.25%, and finally, in July 2024, to 26.75% by 50 basis points.
The rate was been increased by 50 basis points by the MPC to 27.75%.
The goal of these hikes, which have totalled more than 800 basis points since Cardoso took office, is to confront Nigeria’s persistent inflation problems, especially the country’s high core and food inflation.
