On Cardoso’s One Year in Office
In September 2024, Mr. Yemi Cardoso marked his first year as Governor of the Central Bank of Nigeria (CBN), a tenure already distinguished for its tightening monetary policy aimed at stabilising the Naira and transforming Nigeria’s economic landscape.
The Governor of the Central Bank plays a critical role in maintaining macroeconomic stability by steering monetary policy to regulate inflation, ensure liquidity, and safeguard the value of the national currency.
The data on his first year in office shows that his monetary policies might not have been able to deliver on macroeconomic stability. Key economic indicators show persistent challenges in areas such as inflation control, currency stability, and employment level, suggesting that his policy interventions are yet to have their intended impact.
One of the major monetary policy instruments deployed by Mr Cardoso within his first year in office is the interest rate hikes to combat inflation and stabilise the Naira.
In an effort to curb inflation and stabilise the Naira through increased interest rates, other economic variables—such as employment, private sector investment, productivity, and foreign investment—have experienced adverse effects.
Under Cardoso’s administration, the Central Bank raised the interest rate five times, bringing it to a 25-year high. The rate increased from 18.75% in September 2023 to 27.25% by September 2024.
According to the World Economic Forum, the increase in interest rates should lead to a decrease in the inflation rate.
“Interest rate hikes act to slow spending and encourage saving. This motivates companies to increase prices at a slower rate, or lower prices, to stimulate demand.”
However, despite recent rate increases, inflation in Nigeria has surged to its highest level in 25 years, indicating that the expected inflation-curbing effects of higher rates have not yet materialised.
An analysis of CBN governors’ effectiveness in controlling headline inflation shows that Mr. Cardoso experienced the highest inflation rate increase within his first year in office.
According to the CBN data, Sanusi Lamido recorded the lowest inflation rate during his first year in office while simultaneously reducing the interest rate from 8% in May 2009 to 6% by May 2010.
The increase in the headline inflation rate under Cardoso’s tenure has been attributed to the continued depreciation of the national currency, a consequence of the floating currency monetary policy.
The floating currency was put in place to eliminate arbitrage and align the foreign exchange rate in the parallel market and official market by making the market forces determine the value of the Naira.
Within this time period, the Naira has been volatile and has devalued by over 82%. The Naira became the third most devalued currency in Africa.
The devaluation and volatility of the Naira have led to a contraction in both foreign and domestic investment, as fluctuating exchange rates heighten uncertainty and reduce investor confidence.
For foreign investors, the depreciation of the Naira has increased their exchange rate risk and diminished potential returns when converted back to stable currencies, making Nigeria a less attractive investment destination.