Onome Amuge
The Central Bank of Nigeria (CBN) has opted to hold interest rates at a two-decade high, signalling what Governor Olayemi Cardoso called the “beginning of a new phase” in the country’s fight against inflation; one that places institutional credibility ahead of further shock therapy.
The decision, announced after a two-day meeting of the Monetary Policy Committee (MPC) in Abuja, marks a decisive shift from the aggressive tightening cycle that defined Cardoso’s first year in office and reflects growing confidence inside the Bank that its overhaul of the foreign-exchange market is finally gaining traction.
By keeping the Monetary Policy Rate at 27 per cent, the apex bank has chosen stability over additional belt-tightening, even as real interest rates remain one of the highest in emerging markets.
Cardoso told reporters the pause was warranted because clear evidence had emerged that earlier rate rises were feeding through to prices and expectations. Headline inflation has slowed for seven consecutive months, falling to 16.05 per cent in October, less than half the level recorded a year earlier.
“Inflation has gone down steadily. This time last year we were talking of 34 plus and now we are down to 16. Our view is that stability must now be preserved to support the next phase of recovery,” he said.
But the hold on rates, while expected by several analysts, is significant for a deeper reason: for the first time in years, Nigeria’s monetary authority appears to believe it has regained the initiative.
Prior to the latest development, the CBN has long struggled with a credibility gap, widened in recent years by ad-hoc interventions, a heavily managed exchange rate, and disputes with the fiscal authorities. Cardoso, appointed last year with a mandate to repair confidence, has taken a more orthodox approach by tightening monetary conditions sharply, dismantling the multiple exchange-rate windows that distorted price signals, and curbing the CBN’s quasi-fiscal activities.
The CBN’s decision to hold rates, rather than tighten further, suggests officials believe the alignment between monetary, fiscal and structural reforms, long absent in Africa’s fourth largest economy, is finally materialising.
The CBN governor said the disinflation trend reflected the combined effect of tight monetary conditions, a more stable exchange rate, higher capital inflows and stronger food supply. This is even as food inflation, which disproportionately affects poorer households, decelerated to 13.12 per cent in October, while core inflation eased to 18.69 per cent.
Economic output is also showing signs of acceleration. GDP expanded 4.23 per cent in the second quarter, and the purchasing managers’ index hit 56.4 in November, a five-year high that points to broad-based optimism in the private sector.
To reinforce the signal of stability, the MPC adjusted the policy corridor to +50/–450 basis points, but left other indicators unchanged, including the cash-reserve ratio at 45 per cent for deposit-money banks and 16 per cent for merchant banks.
One of the outcomes that most strongly influenced the MPC’s tone is the rapid progress in bank recapitalisation; a key pillar of Cardoso’s reform agenda, first announced this year in response to years of balance-sheet erosion from currency volatility and rising risk weights.
Cardoso revealed that 16 banks had already met the revised capital requirements, years ahead of the 2026 deadline. A total of 27 institutions have raised capital “through various means”, he said.
For an industry often criticised for overstretching itself across multiple African markets, the CBN governor described recapitalisation as a strategic opportunity rather than a regulatory burden. Nigerian banks, he argued, needed stronger buffers not just for domestic lending but to navigate risks in multiple jurisdictions.
“It should be a thing of great joy and satisfaction to know that you have your own banks out there that understand your peculiar needs,” he said, referring to Nigerian businesses operating across the continent.
Cardoso hinted that the end-state he envisions is not merely a better-capitalised system but one that is “very, very fit for purpose”; an industry capable of supporting a more open capital account and absorbing the competition that will come with deeper integration into global financial markets.
Foreign-exchange reforms reshape investor perceptions
Perhaps, the most consequential shift under Cardoso has been in the foreign-exchange arena, where a chaotic and opaque market has long undermined confidence. This year, the CBN introduced the Electronic Foreign Exchange Matching System (EFEMS), a platform that pairs willing buyers and sellers in real time, moving the market towards genuine price discovery.
The result has been a narrowing of the spread between the official and parallel markets, now around 2 per cent, a level virtually unheard of in Nigeria’s FX history.
“What we have in the foreign-exchange markets today, to the best of my knowledge, is something that hasn’t happened before,” Cardoso said.
Daily turnover now averages $500 million, much of it occurring without any CBN intervention. In previous years, traders relied almost entirely on central bank supply.
“You have a market where there are willing buyers, willing sellers… and our EFEMS system is one that is open and very transparent,” the governor said. He argued that the elimination of arbitrage opportunities and the predictability of policy had helped rebuild trust.
The changes have had visible real-world effects. Cardoso noted that travellers are now able to make foreign payments with their naira-denominated cards, which he described as something unthinkable during the years when FX scarcity pushed users into the distance of cryptocurrency platforms and informal markets.
“Nigerians now are very happy and very proud to own the Naira,” he said, in a strikingly optimistic assessment for a currency that has suffered years of volatility.
External buffers strengthen as reforms take hold
Foreign-exchange reserves have risen 9.19 per cent to $46.7 billion by mid-November, equivalent to 10.3 months of import cover. Cardoso said the headline figure understates the real strength of Nigeria’s buffers because of liquidity circulating in the market but not recorded in reserves.
“We are building the reserves on a very systemic basis,” he said, attributing the improvement to a more competitive naira, rising non-oil exports, higher remittances, and renewed portfolio inflows, including from global pension and sovereign funds that had previously withdrawn from Nigeria.
At the core of the CBN’s strategic direction is its strengthened reserve position. Instead of trying to control the currency through direct intervention, the Bank is now seen relying on consistent policy measures to draw capital back into the economy and lessen the need for administrative controls.
