Yemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), has acknowledged the significant impact of the recent hike in interest rates on borrowers, describing it as “painful” but necessary to manage inflation and stabilize the economy. Cardoso made this statement during a keynote address to members of the Harvard Club of Nigeria in Lagos, where he spoke on the topic, “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation.”
Cardoso highlighted that the central bank’s decision to raise the Monetary Policy Rate (MPR) to 27.25%, though difficult for many, was a strategic move aimed at reducing excess liquidity in the economy and curbing inflationary pressures. He emphasized that leadership, particularly in times of economic uncertainty, requires making tough decisions that may cause short-term discomfort but are crucial for long-term stability.
“Our decision to raise the MPR to 27.25% was not taken lightly. Higher interest rates can be painful for borrowers, but they are a necessary tool to reduce excess money in circulation and control inflation effectively,” Cardoso explained. He added, “Leadership is about making hard choices to secure long-term stability over short-term comfort.”
The CBN Governor also underscored the importance of remaining focused on the bank’s primary mandate of ensuring price stability, especially in the face of political and economic pressures. “It is easy to become distracted by various political and economic pressures, but as a leader, one must prioritize. The Central Bank must stay focused on its core mandate—price stability,” he said.
Cardoso also spoke about the importance of rebuilding trust in Nigeria’s financial markets and restoring credibility to the system. He emphasized that the new leadership at the CBN is committed to enhancing transparency and policy clarity, key elements in boosting market confidence. He pointed to the implementation of the Electronic Foreign Exchange Matching System (EFEMS) as a concrete example of the bank’s efforts to improve transparency in foreign exchange transactions and reduce speculative activities.
“Trust is the currency of central banking. If the public loses trust in the institution, the efficacy of its policies diminishes,” Cardoso stated. “Our decision to implement the EFEMS is rooted in the need to enhance transparency and provide more accurate oversight of foreign exchange transactions. This sends a strong signal that the CBN is serious about fair and efficient markets.”
Cardoso further elaborated on the steps taken by the CBN to combat market arbitrage and speculation, noting that these efforts are beginning to yield positive results. He expressed optimism that as trust is gradually restored, the financial system will regain its credibility and effectiveness, benefiting all market participants.
“Our focus on transparency and trust is already leading to a reduction in arbitrage and speculation in the market. These changes are critical in restoring credibility and trust in Nigeria’s financial system,” the CBN Governor concluded.
In a country facing persistent inflationary pressures, the CBN’s decision to hike interest rates, though contentious, reflects its commitment to price stability and economic recovery. The move aligns with broader efforts to rebuild trust and enhance the credibility of Nigeria’s financial markets, even as the public grapples with the immediate impacts of the policy.
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