In an interview with the Financial Times, Cardoso emphasized the Monetary Policy Committee’s (MPC) resolve to combat Nigeria’s soaring inflation. As the chair of the MPC, Cardoso assured that the committee would take all necessary measures to address the country’s economic challenges.
Why It Matters
Nigeria is grappling with an inflation rate of 33.2 percent, the highest in three decades, with food inflation soaring even higher at 40 percent. This economic situation has significant repercussions for the cost of living and overall economic stability. The Central Bank of Nigeria (CBN), under Cardoso’s leadership, is now committed to implementing orthodox monetary policies to stabilize prices and achieve monetary stability. The recent hikes in the monetary policy rate by 400 and 200 basis points in February and March, respectively, lifting the key lending rate to 24.75 percent, reflect this commitment.
What They Are Saying
Cardoso highlighted the shift back to traditional monetary policies, which he believes is essential for long-term economic stability. “For a long period, the CBN did not embrace orthodox monetary policies. We want to go back to using an orthodox method, and it will take us to where we want to go. The apex bank has been reoriented to focus on price and monetary stability,” he stated.
Addressing the fluctuating value of the naira against the US dollar, Cardoso noted that the situation had stabilized, with investors becoming more comfortable with the market. “Investors had previously tended to head for the window in response to currency fluctuations. But now, there had been a fundamental shift. They’re getting more comfortable with the market,” he said.
Razia Khan, Chief Economist at Standard Chartered Bank, supported Cardoso’s approach, stating, “The return to orthodoxy has been very much endorsed by investors. While Nigeria is not seeking an IMF programme it is implementing the kind of policies that would be endorsed by the IMF.”
On the other hand, David Adonri, Vice Chairman of Highcap Securities, cautioned about the potential adverse effects of high-interest rates. “High-interest rates are a bad omen for the economy. They escalate the cost of production and the cost of consumer credit. If supply-side measures are not concomitantly run, it can cause a vicious cycle of galloping inflation. Consequently, monetary and fiscal policies should work together to start addressing the supply gap that will rein in inflation and reduce the interest rate,” Adonri argued.
Bottom Line
Cardoso’s determination to rein in inflation through orthodox monetary policies marks a significant shift in Nigeria’s economic strategy. While the return to traditional methods has gained investor approval, there are concerns about the potential negative impacts of high-interest rates on production costs and consumer credit. The success of these measures will depend on a coordinated approach between monetary and fiscal policies to address underlying supply-side issues and stabilize the economy.
