CBN Governor Defends Interest Rate Hike as Essential for Economic Stability

The Governor of the Central Bank of Nigeria (CBN), Dr. Olayemi Cardoso, has robustly defended the recent increase of the Monetary Policy Rate to 27.25 percent, deeming it an essential step in the fight against inflation and the management of excessive liquidity in the economy.

In a statement made at the Harvard Club of Nigeria over the weekend, Cardoso acknowledged the challenges posed to borrowers but emphasized the necessity of the move for the long-term economic health of the country.

“Our decision to raise the Monetary Policy Rate to 27.25 percent was a bold move. 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,” he stated.

Reflecting on his first year in office, Cardoso highlighted that restoring public trust in the financial system is paramount.

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“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,” he added.

The CBN governor also addressed the controversial decision to float the naira, which faced considerable public backlash.

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Cardoso defended this initiative, stating, “The decision was necessary to bring the official exchange rate closer to market reality and reduce speculative trading. This move has started stabilizing the currency markets.”

Although the CBN has not yet met its inflation targets, Cardoso expressed optimism, citing recent reports from the National Bureau of Statistics indicating a decline in inflation rates for July and August 2024. “Our policies are gradually steering the economy in the right direction, though challenges remain,” he added.