• Wednesday, November 13, 2024
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BusinessDay

Higher interest rates necessary to curb inflation, says Cardoso

Former banker endorses CBN Governor’s FX reforms amid naira volatility

Olayemi Cardoso, the governor of Nigeria’s Central Bank has defended the apex bank’s recent surprising half point hike in the country’s benchmark interest rates, describing the action as necessary to limit money in circulation and rein in rising inflation.

In a press statement released by the Abuja-based bank on Sunday, Cardoso said raising rates by 50 basis points was a ‘bold move’ that has to be made to meet its mandate of price stability.

Though he acknowledged the rate hike is tough on borrowers, the governor emphasised that it was crucial for the country’s economic stability.

“Our decision to raise the Monetary Policy Rate to 27.25 percent was a bold move,” said Cardoso while speaking during an address at the Harvard Club of Nigeria over the weekend,” Cardoso said.

“Higher interest rates, while painful for borrowers, are necessary to curb excess money in circulation and control inflation. Leadership is about making hard choices to secure long-term stability over short-term comfort in moments like these.”

Cardoso assured that the CBN remains focus on meeting its core objectives, such as containing inflation, restoring credibility, and building public trust in the financial system as this will ensure speedy economic recovery.

He made these remarks as he reflected on his tenure as the head of the apex bank at an event where he reeled out his achievements marking one year in office. He pointed out that trust is at the core of central banking, and without it, the effectiveness of the bank’s policies would wane over time.

The CBN governor also said the introduction of the Electronic Foreign Exchange Matching System is a key initiative to enhance transparency and restore lost confidence in the market.

“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 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,” he said.

While the CBN is still widely apart in meeting its 21 percent inflation target this year, Cardoso expressed optimism, citing the recent two straight month decline in inflation in July and August 2024.

The CBN governor maintained that while the economy is on the path of recovery, the storm is yet to be over.

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