The Governor of the Central Bank of Nigeria, Dr. Olayemi Cardoso, recently announced plans to soon decelerate the increases in the benchmark interest rate.
According to The PUNCH, this statement was made in Lagos on Saturday during the launch of Ray Echebiri’s book, ‘The Power of One Man: How the Soludo-Engineered Consolidation Transformed Nigerian Banks to Global Players’.
Represented by Phillip Ikeazor, the CBN’s Deputy Governor of Financial Stability, Cardoso emphasized the necessity of maintaining high rates to mitigate the risk of hyperinflation and its detrimental effects.
He warned, “Once you do not tame and control inflation and you get into hyperinflation, it takes you several years to get out of it. There is still a South American country that still has significant oil reserves but they are in hyperinflation and I think everyone is aware of what is happening in that economy. We have another country in East Africa which is also in hyperinflation. We know how hard they are struggling to get out of that.
“For us as a central bank, we are focusing on our core mandate of price stability, maintaining a stable exchange rate, and, of course, economic growth. But it is a question of sequencing. It is very important that we do not enter hyperinflation. Once you enter hyperinflation, the transmission of monetary economic tools will become completely ineffective. It is important that we avoid that.”
Asked about the duration of the rate hikes, the CBN official responded, “That will be as long as we can control and can reverse galloping inflation. Once we can do that, then we maintain. We are all aware that in the Western world, we did have rate hikes to be able to control theirs and they maintained it for a very long time. It is only now that they have stopped rate hikes but they have not even started dropping the rates as we speak.
“It is important that we tighten and hold on for a little while and in no distant future, we will be able to slow down on the rate hikes.”
In May, Cardoso reiterated the CBN’s commitment to sustaining interest rate hikes until inflation was brought under control.
According to a Financial Times report, he assured that the Monetary Policy Committee would “do whatever is necessary” to curb inflation.
Cardoso stated, “They will continue to do what has to be done to ensure that inflation comes down. Let’s face it: for a long period of time, the CBN did not embrace orthodox monetary policies. We want to go back to using an orthodox method, and it will take us to where we want to go.”
The National Bureau of Statistics reported that in May 2024, the headline inflation rate rose to 33.95 percent from 33.69 percent in April.
Additionally, the CBN’s Monetary Policy Committee increased the benchmark lending rate by 150 basis points, bringing it to 26.25 percent from 24.75 percent.
Former President Olusegun Obasanjo also weighed in, advocating for a synergy between fiscal and monetary policies to foster economic stability and growth in the banking sector.
Represented by former Cross River governor Donald Duke, Obasanjo emphasized, “To sustain this growth, there must be appropriate consultations between fiscal and monetary authorities.”
He praised Anambra State Governor and former CBN Governor, Professor Chukwuma Soludo, for his pivotal role in the 2005 banking sector consolidation, stating, “The consolidation initiated by Soludo was a courageous and necessary move. It has significantly contributed to the stability and growth of our banking sector.”
Lagos State Governor Babajide Sanwo-Olu, also commended Soludo’s efforts while addressing the prevailing economic challenges.
He urged the CBN to implement decisive measures to stabilize the economy, particularly in managing interest rates and inflation, to ease the burden on the private sector.
Sanwo-Olu remarked, “The private sector is currently experiencing tough times due to various economic challenges. The CBN must take swift and effective measures to stabilise the economy. Learning from the past reforms can guide us through these turbulent times.”
Reflecting on the 2005 consolidation, Soludo recounted the obstacles encountered but expressed pride in the accomplishments and urged the current CBN leadership to persist in their efforts to recapitalize the banks to align with the expanding economy.
