Nigeria’s newly appointed central bank governor, Olayemi Cardoso, has vowed to curb the soaring inflation and steady the battered currency in his first policy speech since taking office in September.
Cardoso, a Harvard graduate and former Citibank executive, said the Central Bank of Nigeria (CBN) is committed to achieving monetary and price stability and will tighten policy over the next two quarters to manage inflation, which hit an 18-year high of 27.3% in October.
He also said the CBN will restore confidence in the foreign exchange market, which has been plagued by shortages and volatility since the bank reduced its interventions in June. The naira has weakened by around 40% against the dollar since then and trades at a wide gap between the official and parallel markets.
Cardoso said the CBN has just approved the adoption of an explicit inflation-targeting framework to enhance the effectiveness of monetary policy and will announce the details soon. He also directed banks to boost their capital adequacy ratios to support the expansion of the economy, which grew by 2.51% year-on-year in the second quarter, below market expectations.
Cardoso’s stance signals a willingness to defend the autonomy of the central bank, which has faced pressure from President Bola Tinubu to lower lending rates to stimulate growth. Tinubu, who took office in May, suspended the former governor, Godwin Emefiele, in June and appointed a special investigator to probe the bank’s operations.
Cardoso’s speech was well received by analysts and investors, who welcomed his hawkish tone and reform agenda. “The governor’s remarks were under scrutiny for evidence he has a plan to tackle surging price pressures and currency weakness. He did not disappoint,” said Razia Khan, chief economist for Africa and the Middle East at Standard Chartered Bank.
Khan said Cardoso’s inflation-targeting framework could help anchor inflation expectations and reduce uncertainty in the foreign exchange market. She also said the governor’s emphasis on capital adequacy could pave the way for more lending to the private sector, which has been constrained by high-interest rates and risk aversion.
However, Khan also cautioned that Cardoso’s policy objectives may face some challenges, such as the fiscal stance of the government, which has been running large deficits and borrowing heavily from the central bank. She also said the security situation in the country, which has been worsened by the insurgency of Boko Haram and other armed groups, could pose a threat to economic stability and growth.
Cardoso acknowledged these challenges in his speech but expressed optimism that the CBN, in collaboration with other stakeholders, will overcome them and deliver on its mandate. He said the CBN will continue to support the government’s efforts to diversify the economy, improve infrastructure, create jobs and reduce poverty.
He also said the CBN will work with other regulators to ensure the soundness and resilience of the financial system and will promote financial inclusion and innovation. He said the CBN will also enhance its communication and transparency to foster public trust and accountability.
Cardoso’s speech marks a new era for the CBN, which has been under scrutiny and criticism for its management of the economy in recent years. His appointment has raised hopes that the CBN will regain its credibility and effectiveness, and will play a key role in steering Nigeria’s recovery from the Covid-19 pandemic and the oil price shock.
Source: Bloomberg
