CBN governor justifies rate hike as essential for economic stability

The Central Bank of Nigeria (CBN) Governor, Mr. Olayemi Cardoso, has defended the bank’s recent decision to increase the Monetary Policy Rate (MPR) to 27.25%, describing it as a crucial step to control inflation and manage excess liquidity. This statement was released by the CBN in a press release on Sunday.

Addressing the Harvard Club of Nigeria over the weekend, Cardoso emphasized that while the rate hike may be challenging for borrowers, it is necessary for the country’s long-term economic stability.

“Our decision to raise the Monetary Policy Rate to 27.25% was a bold move. Higher interest rates, though tough for borrowers, are essential to control inflation and limit excess money in circulation. Effective leadership involves making tough choices for long-term stability rather than short-term comfort,” Cardoso remarked.

He highlighted the CBN’s core objectives, including curbing inflation, restoring credibility, and building public trust in Nigeria’s financial system as key components for achieving meaningful economic recovery.

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Reflecting on his first year as CBN Governor, Cardoso underscored the importance of trust in central banking, noting that without it, the effectiveness of the bank’s policies could be compromised. He pointed to the recent implementation of the Electronic Foreign Exchange Matching System as a strategic initiative aimed at enhancing transparency and boosting market confidence.

“Trust is the currency of central banking. When the public loses confidence in the institution, policy effectiveness is weakened. By implementing the Electronic Foreign Exchange Matching System, we aim to improve transparency and oversight of forex transactions, signaling our commitment to maintaining fair and efficient markets,” he stated.

Cardoso also revisited the CBN’s controversial decision to float the naira, a move that initially faced public criticism. He explained that the action was necessary to align the official exchange rate with market realities and curb speculative trading. According to him, the measure has started to stabilize currency markets and reduce speculative activities.

Although the CBN has not yet fully achieved its inflation targets, Cardoso expressed optimism, citing recent data from the National Bureau of Statistics (NBS), which showed a decline in inflation rates in July and August 2024. He acknowledged that while challenges remain, the bank’s policies are gradually steering the economy in the right direction.