The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, has expressed optimism about the future of Nigeria’s economy, citing the positive impact of recent reforms in the foreign exchange market and interest rate hikes.
Speaking at the BusinessDay CEOs forum in Lagos on Thursday, Cardoso highlighted improved investor confidence, the stability of the naira, and the reduction of excess liquidity as key indicators of economic progress.
Cardoso emphasized that the recent interest rate hikes by the CBN were necessary to stabilize the naira and address the surge in money supply, exacerbated by the N23 trillion Ways and Means and N10 trillion intervention funds.
He assured that interest rates would decrease once the rising trend in inflation moderates.
“The Monetary Policy Committee (MPC) is not oblivious to the fact that ultimately we do want the economy to grow. The country does need growth.
If these hikes were not done at the time they were done, the naira to dollar was almost tipping over. This helps to stabilize it,” said Cardoso.
“This is not something that I expect would remain with us forever. Fiscal issues are being moderated, and the ability to soak up all the excess liquidity we have in the system and balance things out over time is crucial.”
Cardoso noted a significant reduction in the month-on-month rate of inflation between February and May of this year, adding, “I believe that in the not-too-distant future, things will begin to modulate and interest rates will come down.”
Naira Stability
Cardoso also assured that the naira would experience more stability due to the elimination of market distortions and increased stakeholder confidence in the new forex market regime.
“When we assumed leadership at the Central Bank, we found significant distortions within the system, such as illicit flows and non-compliance with rules. We believe that a portion of volatility in the exchange rate was due to these malpractices,” he said.
According to Cardoso, stakeholders are becoming more comfortable with the new market operations, reducing the need for front-loading forex requests.
“Portfolio investors have shown renewed confidence, indicating a trust in the direction of our plan and greater transparency in the market,” he added.
Recapitalization & Retained Earnings
Cardoso stressed that the ongoing banking recapitalization exercises aim to build a stronger and more resilient banking system.
He clarified that excluding retained earnings from the computation of minimum capital requirements ensures a fair standard of comparability.
“What we are looking to do is build a better and stronger banking system. The contribution of the banking system towards our GDP is relatively modest compared to our peers.
We believe this recapitalization will open banks to providing diverse services,” he explained.
“Excluding retained earnings helps in building comparability, as accounting rules can vary in calculating certain financial metrics. Moving towards a more transparent system within the banking industry is crucial, and this will contribute significantly.”
