The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, has provided insights into the bank’s recent decision to raise the interest rate during its latest Monetary Policy Committee (MPC) meeting. He explained that the primary objective of this move was to curb inflation.
Speaking to the Harvard Club of Nigeria in Lagos on the theme “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation,” Cardoso stated that the decision to increase the Monetary Policy Rate (MPR) to 27.25% was a strategic move aimed at reducing the amount of money in circulation. He noted that while higher interest rates might pose challenges for borrowers, they are necessary to stabilize the economy and control inflation.
“Leadership is about making tough decisions that prioritize long-term stability over immediate comfort,” Cardoso remarked.
During his address, Cardoso emphasized the importance of focused leadership during difficult times. He pointed out that the CBN must remain committed to its primary mandate of ensuring price stability, despite the various political and economic pressures it faces. He highlighted the significance of clear communication in maintaining trust, stating that transparency has always been a guiding principle for the bank.
“Trust in a central bank is built on transparency and the willingness to take necessary actions for economic stability, even when those actions are difficult or politically sensitive,” he said.
Cardoso also discussed the bank’s decision to implement the Electronic Foreign Exchange Matching System (EFEMS). He explained that this initiative aims to increase transparency and provide better oversight of foreign exchange transactions, reinforcing the bank’s commitment to fair and efficient markets.
“Trust is the currency of central banking,” Cardoso noted. “Without public confidence, the effectiveness of our policies is compromised.”
Marking his one-year anniversary as CBN governor, Cardoso reflected on the challenges of leadership, especially when it involves making unpopular decisions for the greater good. He reiterated the bank’s focus on restoring its credibility, building trust in the financial system, and prioritizing inflation control as fundamental to Nigeria’s economic recovery.
Reflecting on his journey since assuming office, Cardoso shared that enhancing the CBN’s credibility was a priority from the outset. He mentioned that floating the naira, despite facing public criticism, was a necessary step to align the official exchange rate with market conditions, thereby reducing speculation and rebuilding trust in the currency market.
“Credibility is achieved through consistent actions. Closing the gap between the official and parallel exchange rates, although initially challenging, signaled the CBN’s commitment to transparency and robust monetary policy,” he added.
Cardoso concluded by acknowledging that while the bank has not yet fully met its inflation targets, recent data from the National Bureau of Statistics (NBS) indicate progress in the right direction, with inflation rates showing a decline in July and August 2024.
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