CBN’s Cardoso Optimistic As Monetary Policies Halve Month-on-Month Inflation Rate

 Governor of Central Bank of Nigeria (CBN), Olayemi Cardoso, on Thursday, said the ongoing monetary policies were yielding positive results, with month-on-month inflation rate halving, indicating a more stable economic outlook.

Cardoso spoke in Lagos at the Businessday CEO Forum, where stakeholders converged to discuss on the theme, ‘’Leadership in Tough Economic Times.”

He also stated that the ongoing recapitalisation process would build a resilient banking sector capable of withstanding future economic shocks.

Cardoso stressed that the exclusion of banks’ retained earnings was to increase the banking sector’s contribution to Gross Domestic Product (GDP), which he tagged modest.

He said, “I can tell you that between February and May of this year, the month-on-month rates of inflation have halved and has gone down 50 per cent. To the extent that the right policies are used, and obviously, with the results we’ve seen the right policies are being used.

“I believe that in the not-too-distant future, things will begin to modulate, and interest rates will come down.”

Speaking on recapitalisation, the CBN governor said, “One of my first major outings was late in 2023 at the Chartered Institute of Bankers and at that time, I did signal, I actually said this is what we will do. We didn’t know how much it was still a work in progress, but I thought it was necessary to tell bankers and the market that this was where we were headed. Then this year, we now went out and spoke about the issue of the amounts.

“Now, as far as I can see, the banks had more than enough time to prepare for this. We also gave them a whole two years. Again, that’s not normal in the Nigerian circumstance, when it comes to policymaking. Policies come out and they expect you to do it within six months, nine months or immediately and we said, no. Two years, take your time.

“Don’t be in any rush. What we are looking to do is build a better, stronger, and more resilient banking system. And that is not something we want you to do overnight.

“It is important to note that the contribution that the banking system has towards our GDP is relatively modest in comparison to our peers. This, we believe, is a means of hopefully beginning to address that issue. Indeed, will open the banks to wanting to provide different kinds of services to the populace, as opposed to aggregate it in one particular area.”

He added concerning retained earnings, which were being debated upon, that the announcement of recapitalisation would help to build “comparability”.

Cardoso said one of the significant challenges faced by the CBN had been the volatility in the foreign exchange market. However, he said stakeholders were beginning to see stability in the FX market, which was critical to averting future volatility.

Speaking on foreign exchange volatility, Cardoso said. “When we came into the saddle of leadership at the central bank, we looked at the system and found that they were an awful lot of distortion within the system.

“For example, illicit flows, and people not abiding by the rules. It was very important we addressed these things so that the market could function more smoothly and a lot better. 

Now, in the process of doing this sometimes what you find is that there is pushback.

“It is important for those who are on the other side to recognise that we are going to be consistent in doing what we are doing before markets begin to settle. So we believe that quite a portion of that volatility was attributed to this and we believe that with time, stakeholders are becoming a lot more comfortable with the way the market is being run.”

Cardoso added, “Even with portfolio investors, we found a good number of them came in, left and then came in again because they were pretty comfortable that there was a plan and that the plan was headed in a direction that they could see, understood and they trust us.

“A lot of the wild swings that we saw are gradually beginning to smooth out as a result of a better understanding of the market, the transparency that is taking place, and the comfort that those who are using the market see in it.”

He reaffirmed that his approach to leadership involved listening and implementing policies based on consultation, ensuring that the resulting policies positively affect the average citizen.

Regarding the interest rate hikes, Cardoso stated that interest rates were not determined by the CBN governor but by the Monetary Policy Committee (MPC), which consists of independent, data-driven individuals.

He stated that MPC’s primary focus was on controlling inflation, and it was committed to taking necessary steps to achieve this goal.

The CBN governor acknowledged the enormous money supply in the system, which had led to economic consequences. He cited the rise in “Ways and Means” to N27 trillion and interventions amounting to N10.5 trillion as key factors contributing to the current economic situation. He described the interventions as painful but necessary steps to stabilise the economy.

The CBN governor emphasised that the high interest rates were a temporary measure. He stated that with the moderation of fiscal issues and the ability to absorb excess liquidity, the situation was expected to improve overtime.

He said, “Interest rates are not set by the governor of the central bank. Interest rates are set by the MPC. And, thankfully, we have a Monetary Policy Committee comprised of independent-minded thinking people. And these are people who are not given to emotion. What they look at is data, and they basically go along with what the data says.

“The MPC has made it very clear that for them the major issue is taming inflation and has also made it very clear that they will do whatever is necessary to tame inflation.

“Sadly, we have a situation where we were all there when a lot of money supply went into the system. We all saw Ways and Means soar to N27 trillion. We saw interventions at N10.5 trillion. It has its consequences.

“Painful, but it has its consequences. And to a large respect, that is what we’re paying for now. However, let me conclude by saying that one is not and I can say the MPC is not oblivious to the fact that, ultimately, we do want to grow, the country does need growth. If these hikes were not done at the time they were done, if you recall, the naira to the dollar was almost tipping over. This is not something that I expect would remain with us forever.”

Looking ahead, Cardoso expressed optimism in Nigeria’s economic future, provided that current policies continued to be effectively communicated and implemented.

 He stated, “We need sincerity of purpose and the will to overcome our challenges. With the right actions and clear communication, I am confident that we will emerge stronger. The future is bright as far as I can see it.”

Nume Ekeghe

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