The International Monetary Fund (IMF) has lauded the Central Bank of Nigeria (CBN) for its recent monetary policies, which have contributed to stabilizing the naira amid ongoing economic challenges.
In its latest Global Financial Stability Report, presented in Washington D.C., the IMF highlighted the CBN’s aggressive interest rate hikes and efforts to clear foreign exchange (FX) backlogs as key measures in reversing the naira’s depreciation.
Under the leadership of newly appointed CBN Governor Olayemi Cardoso, the bank has implemented a series of rate hikes to tackle inflation, which remains stubbornly high at around 30%.
These rate increases, combined with the CBN’s commitment to addressing overdue FX obligations, have been instrumental in easing pressure on the naira.
The IMF pointed to the March 2024 CBN announcement as a pivotal moment, where the bank declared it had settled verified foreign exchange obligations, totaling billions of dollars.
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This followed the discovery of an additional $2.4 billion in unverified obligations still under investigation. By resolving a portion of these backlogs, the CBN has helped stabilize the naira, which had been under immense pressure in both official and parallel markets.
Tobias Adrian, the IMF’s Financial Counsellor and Director of Monetary and Capital Markets, praised the CBN’s shift towards inflation-targeting and exchange rate liberalization, emphasizing that the rate hikes have been necessary to address Nigeria’s inflationary crisis.
“The central bank’s transition to inflation-targeting and exchange rate liberalization has been welcomed. The rate hikes have been appropriate, especially given Nigeria’s inflationary challenges,” Adrian remarked.
However, not all stakeholders share the IMF’s optimism. The Manufacturers Association of Nigeria (MAN) and the Lagos Chamber of Commerce and Industry (LCCI) have expressed concerns over the CBN’s tightening monetary policy, particularly its impact on the struggling business environment.
MAN warned that the continuous rate hikes, including the latest increase to 27.25% in September, could stifle growth in Nigeria’s manufacturing sector by raising borrowing costs and limiting access to credit.
The LCCI echoed these concerns, cautioning that while stabilizing the naira is critical, the high interest rates could hinder business expansion, particularly in the non-oil sector.
Rising costs and limited credit access, already burdensome for many businesses, could be further exacerbated by the CBN’s aggressive rate increases.
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Despite the IMF’s positive assessment of the CBN’s efforts, the World Bank’s view on the naira’s performance has been less favorable. The World Bank recently named the naira as one of the worst-performing currencies in sub-Saharan Africa, pointing to its sharp depreciation over the past year. Nonetheless, in recent weeks, the naira has shown signs of stability, trading between N1,700 and N1,600 per dollar in the parallel market and N1,500 to N1,600 in the official trading window.
Financial analysts have warned that while the naira’s short-term stability is encouraging, long-term solutions are needed to address Nigeria’s underlying economic weaknesses.
Dr. Olumide Adetola, an economic analyst, cautioned that the naira’s recent gains are fragile, particularly with inflation at concerning levels and structural challenges persisting within the economy.
“The naira’s performance may be improving, but these gains are fragile,” Adetola stated. “Nigeria needs to focus on broader reforms beyond monetary policy, including boosting productivity, improving fiscal policies, and addressing inefficiencies in the foreign exchange market.”
While the IMF acknowledges the CBN’s success in stabilizing the naira, both local stakeholders and international observers agree that deeper, more comprehensive reforms are necessary to secure long-term economic stability.