Nigeria’s Central Bank, under the leadership of Governor Olayemi Cardoso, has set a goal to reduce the nation’s inflation rate to approximately 21%. This ambitious target comes in response to the December inflation rate reaching 28.92%, marking the highest level in over 27 years. The Central Bank of Nigeria (CBN) plans to implement this through an inflation-targeting policy, which marks a significant shift from the previous unconventional approaches.
Addressing the challenges ahead, Governor Cardoso noted the critical role of improved agricultural output and the easing of global supply chain issues. These factors are expected to enhance consumer confidence and boost purchasing power. The central bank’s policy shift towards more traditional monetary strategies aligns with President Bola Tinubu’s broader economic reforms, including the elimination of petrol subsidies and modifications to currency trading restrictions.
Nigeria aims for balanced exchange rates
The Central Bank of Nigeria is not only focusing on inflation but also on correcting the undervaluation of the Nigerian naira. Governor Cardoso expressed confidence in the naira’s inherent value and outlined a coordinated approach to achieve a balanced and stable exchange rate. This plan involves monetary and fiscal measures, aiming for a more accurate price discovery in the short term.
In addition to these efforts, the CBN is actively working to improve liquidity in the foreign exchange market. Governor Cardoso reiterated the bank’s commitment to clearing outstanding foreign exchange obligations, with at least $2 billion already paid off the estimated $7 billion owed. This move is expected to narrow the gap between the official and parallel market exchange rates, a longstanding issue contributing to the country’s forex shortage.
Challenges and future outlook
Despite these proactive measures, the Central Bank of Nigeria faces several challenges. The country’s forex shortage remains a significant hurdle, further complicated by the disparity between official and parallel market exchange rates.
Moreover, the CBN’s rate-setting meeting next month, the first since Governor Cardoso assumed office, is anticipated with high expectations. Analysts predict pressure on the central bank to raise interest rates, a decision that could have far-reaching implications for the nation’s economy.
Looking ahead, the CBN’s policy direction under Governor Cardoso’s leadership signals a new era in Nigeria’s economic management. The combination of targeted inflation reduction and naira valuation adjustments is poised to address some key issues facing Africa’s largest economy.
