KEY POINTS

• Nigeria’s inflation cooled to 33.9% in October after aggressive rate hikes.
• Governor Cardoso emphasizes economic stabilization and policy flexibility.
• Currency reforms boost investor confidence and reduce naira disparity.

Central Bank of Nigeria Governor Olayemi Cardoso indicated on Friday that the central bank may ease its tight monetary stance in the coming year, provided inflation pressures continue to cool.

Speaking at an annual banking industry dinner in Lagos, Cardoso assured stakeholders that the current high interest rates are a temporary measure.

“These measures are not intended to be permanent,” Cardoso said, emphasizing the bank’s commitment to adjusting rates as inflation shows sustained improvement.

CBN hikes rates to counter inflation

The CBN has raised rates by a cumulative 875 basis points this year, including a recent 25 basis-point hike to 27.5 percent, to counter inflation, which reached 33.9% in October, unprecedented levels since 1996.

Price pressures have been fueled by surging food and fuel costs and a weakened naira.

“Our tight monetary policy stance has altered the previous dire trajectory,” Cardoso noted. “We expect a downward trend in inflation by 2025, as the full effects of monetary policy typically take six to nine months to materialize.”

Cardoso has implemented reforms since his appointment in 2023 by President Bola Tinubu aiming to stabilize the economy.

Since his appointment, he implemented a flexible exchange rate which narrowed the gap between the official and parallel markets and attracted increased capital inflows.

Inflation cooling brings optimism

The CBN’s aggressive tightening measures have helped moderate inflation’s trajectory. Analysts, however, expect rate hikes to continue into the second quarter of 2025 to address persistent inflationary pressures.

Cardoso’s remarks reflect optimism about the central bank’s progress toward achieving macroeconomic stability. He acknowledged the significant burden of high rates on businesses and consumers but stressed their necessity to restore stability.

Currency stabilization efforts

The naira has lost approximately 70 Percent of its value since Tinubu unpegged it from the dollar in 2023.

On the positive side, the currency reforms have reduced the disparity between official and unofficial exchange rates. 

The reforms have also bolstered investor confidence, contributing to an uptick in capital inflows.

Cardoso reiterated his commitment to orthodox monetary policy, which he first pledged at the same event in 2023, promising to remain vigilant in monitoring economic indicators and adjusting policies as needed.

While inflation remains high, Cardoso’s assurances of potential rate cuts provide hope for relief in Nigeria’s economic environment in the near future.