How Cardoso is Positioning Economy for Stronger Growth Amid Tough Reforms

James Emejo writes on the recent decision by the Central Bank of Nigeria to retain all key monetary policy parameters

The renewed conflict in the Middle East has emerged as the biggest external threat confronting monetary authorities worldwide. Higher crude oil prices, supply chain disruptions and renewed inflationary pressures have forced several central banks to reassess earlier expectations about inflation and interest rates.

For Nigeria, these developments have complicated the CBN’s own inflation projections.

Cardoso admitted that the bank had expected inflation to be firmly on course towards single digits by early 2027 after recording 11 consecutive months of disinflation.

That trajectory, however, was interrupted by shocks that neither Nigeria nor most global policymakers anticipated.

Rather than dismiss the impact of those developments, the CBN Governor, Olayemi Cardoso, acknowledged that the external environment had fundamentally changed.

The conflict has lasted much longer than expected, making inflation management more difficult.

Yet, despite these pressures, he insisted the economy has demonstrated remarkable resilience.

That resilience, according to him, reflects reforms implemented jointly by fiscal and monetary authorities, stronger policy coordination and improved macroeconomic management. It is this resilience that largely informed the MPC’s decision to maintain the Monetary Policy Rate at 26.5 per cent instead of tightening further or beginning premature easing.

Stability as Bigger Achievement

Perhaps Cardoso’s strongest message was that Nigeria has moved beyond the era of chronic macroeconomic instability. For him, stability itself is now the country’s biggest economic asset.

He argued that without stable prices, a more predictable foreign exchange market and stronger reserves, investment cannot flourish and economic expansion becomes difficult. The governor maintained that the painful reforms implemented in recent years have created the platform upon which future growth will rest.

Although many Nigerians are yet to feel the full benefits, he expressed confidence that the economy is gradually moving in the right direction. His argument is supported by several indicators highlighted after the MPC meeting.

External reserves rose to $52.52 billion as of July 17 from $50.47 billion at the end of May, providing import cover of about eleven months—well above international benchmarks. Headline inflation also eased marginally to 15.91 per cent in June from 15.93 per cent in May, ending three consecutive months of increases.

Core inflation moderated more significantly as exchange rate stability continued to reduce imported inflation.

Although food inflation remains elevated because of supply constraints, the overall inflation trend suggests previous monetary tightening is beginning to produce results. For Cardoso, these developments validate the difficult policy decisions taken over the past two years.

Reforms Paying Off Despite Delayed Inflation Target

The governor did not shy away from admitting that the CBN’s earlier timeline for returning inflation to single digits has shifted.

Instead, he attributed the delay almost entirely to external developments beyond Nigeria’s control.

The important point, however, is that the underlying direction has not changed. According to him, inflation is still moderating, albeit gradually, indicating that monetary policy remains effective. He also emphasised that inflation cannot be defeated by monetary policy alone.

Persistent structural rigidities—including supply bottlenecks and food production challenges—require stronger collaboration between fiscal and monetary authorities.

That cooperation, he stressed, has become even more important in the current environment.

The MPC similarly welcomed the federal government’s renewed commitment to policy coordination and implementation of reforms capable of strengthening macroeconomic fundamentals.

Among these is Executive Order 9, which the committee believes could further improve fiscal outcomes.

The CBN also encouraged continued efforts to raise crude oil production while unlocking opportunities in solid minerals and other productive sectors to diversify government revenue.

Why CBN Is Standing Firm on Exchange Rate Reforms

Another major takeaway from Cardoso’s engagement with journalists was his firm defence of Nigeria’s foreign exchange reforms.

Despite periodic calls for official intervention to influence the naira’s value, the governor insisted the central bank would remain committed to a transparent, market-driven foreign exchange framework based on willing buyer-willing seller principles.

In his view, exchange rates should ultimately reflect economic fundamentals—not administrative targets. Oil earnings, non-oil exports, foreign direct investment and domestic productivity will determine where the currency settles over time.

Cardoso said, “Again, our view is one of continuing on the path that we have embarked upon, and that is to ensure that we have a market that is transparent, liquid, and based on a willing buyer, willing seller framework. That’s it.

“Now, where that price settles—and don’t forget that price is a moving target—is a function of a number of different factors. Where it eventually settles cannot happen without fundamentals kicking in. Oil and non-oil exports, foreign direct investment, domestic productivity to reduce imports—all those things need to kick in.

“But we are very comfortable at the central bank that we have a fully functional market. A market that is open. A market that is transparent. A market where, on some days, turnover exceeds one billion US dollars.

“It is also a market that is responding positively to the things we are doing as the central bank. A very important point is that, at the present level, the country does need a competitive currency and, from every indication, the current levels support competitiveness.”

He argued that the market has become considerably more transparent and liquid, with daily turnover exceeding one billion dollars on some trading days.

Importantly, Cardoso believes the present exchange rate provides Nigeria with a competitive currency capable of supporting exports and broader economic competitiveness. Rather than focusing on defending a particular exchange rate level, the CBN appears more interested in maintaining credibility, transparency and liquidity in the market.

A Stronger Banking Industry Emerging

The banking sector also featured prominently in Cardoso’s assessment of Nigeria’s economic outlook.

He described the recapitalisation exercise as one of the most significant successes achieved under the current reforms.

With 33 out of 37 commercial banks meeting new capital requirements without extending the regulatory deadline, the governor said the exercise has substantially strengthened the industry’s resilience.

Notably, much of the capital was mobilised domestically, demonstrating growing confidence in Nigerian financial institutions. Cardoso noted that stronger capital buffers will eventually translate into higher-quality lending and greater capacity to finance economic growth.

He dismissed concerns over slowing credit expansion, explaining that the decline reflects banks’ transition away from COVID-19 regulatory forbearance rather than weakness in the financial system.

Banks are recalibrating their balance sheets and improving asset quality after extraordinary pandemic-era relief measures outlived their usefulness.

According to him, this temporary adjustment should not be mistaken for structural weakness.

As institutions continue building stronger capital positions, lending is expected to recover sustainably.

He also reassured customers of banks yet to complete recapitalisation that they remain under close regulatory supervision and that their deposits remain protected.

He said, “I think it’s important to give ourselves credit and to give the banking system credit for the enormous gains that have been made. Really and truly, being able to recapitalise without extending the deadline, with 33 out of the 37 banks meeting the threshold we had set, is something that is very commendable. Much of that capital came from domestic sources, which is also hugely commendable.

“The amounts raised are something that we, as Nigerians, should be very proud of, especially considering the fact that Nigerian banks dominate many parts of the African continent. They are present across Africa and are helping to catalyse commerce in many countries.

“I think the recapitalisation exercise has been successful, and I can say to Nigerians that the industry has been considerably strengthened.”

Cardoso added, “Going forward, as the banks continue to build their buffers, you will see an increasingly healthier banking system that all of us can be proud of. This is not something that happens overnight.

“We want, by every means, to avoid the boom-and-bust cycle where, after a number of years, we find ourselves having to intervene again. We want to ensure that our supervisory processes remain strong and that the banks remain resilient.

“That philosophy also applies to those banks that have not yet met the recapitalisation requirement.

I will remind you that, for those banks, there were interventions at particular points in time, and as a result they lost valuable time. A number of other developments also occurred, all of which the Central Bank is fully aware of from a regulatory standpoint.

“As far as we are concerned, they remain on track. Different alternatives are being considered to ensure that they attain the same level as the other banks. At this point in time, I can confirm that customers should continue with their normal banking business.

“Those banks are under our guidance. They are strictly under our supervision, and you have nothing to worry about.”

Building Institutions That Inspire Confidence

Beyond immediate monetary policy decisions, Cardoso devoted considerable attention to institutional reforms.

He pointed to the introduction of the Nigeria Overnight Risk-Free Rate (NOFR) as another important milestone.

Unlike previous benchmark rates that depended largely on banks’ quoted estimates, NOFR is based on actual market transactions, aligning Nigeria with international best practices adopted in major financial markets.

The benchmark is expected to strengthen monetary policy transmission and eventually support the country’s transition towards a full inflation-targeting framework.

Similarly, the governor linked declining demand for lower denomination notes, including the N100 note, to increasing financial inclusion and digitisation. Although the notes remain legal tender, he believes Nigeria is steadily moving towards a more digital payments ecosystem consistent with global trends.

Cardoso also used the occasion to reflect on the international recognition recently received by the CBN.

Rather than presenting the Global Central Bank Award as a personal achievement, he described it as recognition of the institution, its staff and Nigeria’s broader reform journey.

He argued that international observers closely monitor policy consistency, institutional reforms and economic management. According to him, the difficult decisions taken over recent years have not gone unnoticed globally.

That recognition, he suggested, reinforces confidence that Nigeria’s reform programme is moving in the right direction even if domestic benefits are still unfolding.

He equally acknowledged the resilience of Nigerians who have borne the costs of adjustment, expressing optimism that the sacrifices would ultimately produce stronger and more sustainable economic outcomes.

According to him, “NOFR “reflects the cost of overnight secured funding in the Nigerian interbank market.

Now, why is that important? Why does that matter? Because it reflects two things.

“One, it reflects greater transparency in how that particular rate is determined.

In the past, we had a situation where banks would simply quote a rate that they believed reflected what interest rates should be. We have now done away with that. This system ensures that real transactional rates, as opposed to judgmental rates, are the ones being used. That’s very important.

“I would also not hesitate to say that we are not the first to do this. We are aligning ourselves with global benchmark standards. The United Kingdom, for example, moved away from LIBOR to SONIA (Sterling Overnight Index Average) and so has the United States with its own benchmark rates.

“So we are getting in line with international benchmarking standards going forward.

“Of course, we expect there will be greater synergy between the Monetary Policy Rate (MPR) and NOFR going forward.

The MPR is the general benchmark, while NOFR gives a clearer idea of the rate at which actual transactions are being executed. Indeed, as we continue on the path towards an inflation-targeting framework, NOFR will become a key ingredient in that framework.”

Way Forward

The MPC’s latest decision underscored a central theme of the cou try’s current monetary policy: preserving stability before pursuing aggressive growth. The committee recognises that inflation risks remain elevated, particularly if geopolitical tensions worsen. At the same time, it believes macroeconomic fundamentals have improved sufficiently to withstand external shocks without abandoning the reform path. The CBN governor’s message was ultimately one of cautious optimism.

The journey towards lower inflation may now take longer than initially projected, but the governor insists the direction remained unchanged.

With stronger reserves, a more transparent foreign exchange market, improved banking sector resilience and deeper coordination between fiscal and monetary authorities, the CBN believes the economy is gradually laying the foundation for stronger investment, sustained growth and better economic outcomes.

For the central bank, the painful adjustments of today are intended to deliver a more stable and competitive Nigerian economy tomorrow.