Cardoso defends painful interest rate hike, emphasizes inflation control

Yemi Cardoso, Governor of the Central Bank of Nigeria (CBN), has acknowledged the difficulties faced by borrowers due to the recent rise in the interest rate to 27.25%.

Speaking at the Harvard Club of Nigeria in Lagos, Cardoso admitted that while the hike is “painful” for those borrowing money, it is a necessary step to curb excess liquidity and tackle inflation effectively.

During his address, titled “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation,” Cardoso explained that the central bank must prioritize long-term economic stability over short-term comfort.

He emphasized that the CBN’s decision to raise the Monetary Policy Rate (MPR) was not taken lightly but was critical in addressing inflation by reducing the amount of money circulating in the economy.

“Our decision to raise the MPR to 27.25% was a bold move. Higher interest rates, while painful, are essential to limit excess money and manage inflation,” Cardoso stated. He further highlighted that true leadership involves making difficult choices to secure long-term economic stability, despite political and public pressures.

Under Cardoso’s leadership, the CBN has focused on restoring market trust through transparent policies, such as the adoption of the Electronic Foreign Exchange Matching System (EFEMS) to enhance oversight of foreign exchange transactions.

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This move, according to Cardoso, has curbed speculation and reduced market inefficiencies, helping to rebuild trust among market participants.

“Trust is the currency of central banking. Without it, policy effectiveness suffers. Our decision to implement EFEMS sends a clear message that the CBN is serious about fostering a fair and efficient market,” he added.

Cardoso’s tenure has seen a series of interest rate hikes, with the CBN’s Monetary Policy Committee (MPC) increasing rates five times since he took office. These hikes, which began at 18.75% and have now reached 27.25%, reflect the bank’s efforts to address Nigeria’s persistent inflation challenges, particularly in food and core inflation categories.

Despite public concerns, Cardoso remains committed to ensuring that the CBN stays focused on its core mandate of price stability, reiterating that the long-term goal is to secure a stable and thriving economy.

However, a survey in July 2024 revealed a divided public opinion, with only 36.3% supporting the interest rate hikes, while 50.6% preferred lower borrowing costs despite inflation concerns.

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The CBN’s inflation-fighting strategy under Cardoso aims to balance these public sentiments with the need to control inflation and restore credibility to Nigeria’s financial system.