Monetary Policy Rate Hikes Stabilize the Economy, Says Cardoso
Olayemi Cardoso, the Governor of the Central Bank of Nigeria, recently highlighted the significant role of interest rate hikes by the Monetary Policy Committee (MPC) in stabilizing the Nigerian economy. Addressing industry leaders at the CEO Forum on ‘Revitalizing Nigeria’s economy: strategic monetary policies for economic growth’, Cardoso emphasized the committee’s commitment to combatting inflation and stabilizing the Naira.
Cardoso explained, “The measures taken to adjust interest rates were critical at a moment when the Naira was on the brink of significant devaluation. These actions have proven essential in maintaining the economy’s stability.”
He further clarified that decisions regarding interest rates are determined by the MPC, a body comprised of individuals who rely on data rather than emotion. The Committee’s primary focus, according to Cardoso, is on inflation control, stating, “Taming inflation remains our top priority, and we will undertake necessary actions to achieve this goal.”
Following a series of adjustments, the Monetary Policy Rate (MPR) has risen by a total of 650 basis points, reaching 26.25 percent by May 2024. The rationale behind these increases, as outlined by the CBN Governor, was to absorb the excess liquidity flooding the economy. Cardoso is optimistic about these measures, noting a 50% reduction in the month-to-month inflation rate over the last six months, evidencing the hikes’ effectiveness.
The Governor did not shy away from acknowledging the challenges faced by the economy, including significant rises in ways and means to N27 trillion and interventions amounting to N10.5 trillion, underlining the consequential nature of these financial strategies. “These decisions have had their impact, yet they were timely and are not expected to persist indefinitely. Gradually addressing the excess liquidity is crucial,” he added.
Addressing the topic of foreign exchange (FX) volatility, Cardoso attributed part of the problem to financial system dysfunctions, including illicit flows and non-compliance with regulations. Corrective measures have been initiated to ensure market stability and to foster an environment of rule adherence.
Cardoso believes that restoring confidence among stakeholders has been key to stabilizing the FX market, “The exit of portfolio investors was a significant concern, but through consistent policies and a clear direction, we’ve managed to see their return. Our efforts towards transparency and effective communication are smoothing out previous market dysfunctions,” he concluded.
The measures taken by the Monetary Policy Committee under Cardoso’s leadership highlight a strategic approach to addressing economic challenges in Nigeria. Through interest rate adjustments and a focus on market stability, the Central Bank of Nigeria aims to foster a more stable and growth-oriented economic environment.
