MPC: Real reason we raised interest rate — Cardoso

The Governor of the Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, has justified the recent increase in interest rates during the Monetary Policy Committee (MPC) meeting, aimed at controlling inflation.

The decision to raise the Monetary Policy Rate (MPR) to 27.25% is a strategic measure to curb excess liquidity and tackle the ongoing inflationary pressures.

Speaking to members of the Harvard Club of Nigeria in Lagos on the theme “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation,” Cardoso acknowledged the challenges posed by higher rates, especially for borrowers. However, he emphasized the necessity of the move for economic stability. He also highlighted the implementation of the Electronic Foreign Exchange Matching System (EFEMS) as a vital step to foster trust and transparency within the banking system.

”Leadership is about making hard choices to secure long-term stability over short-term comfort in moments like these.”

Highlighting key leadership lessons, the CBN governor said: “Leading through challenging times means avoiding the temptation to take on too many initiatives.

‘The Central Bank must focus on its core mandate—price stability. It is easy to become distracted by various political and economic pressures, but as a leader, one must prioritise.

“Effective communication is as important as the right policy. Clear and open communication fosters trust. From publishing the results of the Dutch Auction to ensuring regular updates on economic data, transparency has been our guiding principle.

”Trust is built on the belief that a central bank will take the necessary steps to ensure economic stability, even when those steps are uncomfortable or politically contentious.”

He reiterated that the CBN’s move was to enhance transparency and provide more accurate oversight of foreign exchange transactions.

He said: “Trust is the currency of central banking. If the public loses trust in the institution, the efficacy of its policies diminishes. Our decision to implement the Electronic Foreign Exchange Matching System, EFEMS, is rooted in this understanding.

“By enhancing transparency and providing more accurate oversight of forex transactions, we send a strong signal that the CBN is serious about fair and efficient markets.”

Cardoso, who marks one year in office as CBN governor, this week, told his audience that leadership, especially as the head of a central bank, often required making difficult and sometimes unpopular decisions.

He emphasised the fact that the bank was a listening institution, unafraid to reconsider decisions if they failed to meet its original objectives.

“In the face of economic challenges, it is imperative to focus on core objectives—restoring the credibility of the institution, building trust in the financial system, and, most critically, containing inflation.

These are not just strategic goals; they are foundational to any meaningful recovery,” he said.

Speaking on his journey on the saddle, Cardoso recalled that upon assumption of duty, he understood that the credibility of the Central Bank of Nigeria , CBN, had to be the bedrock of the actions he and his team took.
He said: “Without credibility, no policy, however, well-intentioned, can succeed. Floating the naira, a decision met with considerable public criticism, was necessary to bring the official exchange rate closer to market reality. The disparity between the official and parallel rates had encouraged arbitrage and speculation, eroding trust in the market.

“Credibility is earned by consistency. The decision to close this gap, while painful in the short term, sent a message to market participants that the CBN was committed to transparency and sound monetary policy,” he added.

He noted that speculative trading had been reduced, adding that stability was gradually returning to the currency markets.

While noting that containing inflation remained the bank’s core mission, the CBN boss acknowledged that the apex bank was yet to meet its target.

However, he stressed that recent declines reported by the National Bureau of Statistics, NBS, in July and August 2024, showed that the CBN was moving in the right direction.