Cardoso highlights the negative impact of excessive money printing and the crash in oil prices on Nigeria’s economy. Discover the economic challenges and potential solutions.
The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has once again attributed the current economic challenges facing the nation to the monetary policies implemented by his predecessor, Godwin Emefiele.
Cardoso made these remarks during a press conference on Tuesday, following the conclusion of the 297th meeting of the Monetary Policy Committee (MPC) in Abuja.
He announced the committee’s decision to increase the Monetary Policy Rate (MPR) by 50 basis points, raising it from 26.75% to 27.25% in an effort to combat the inflation rate, which currently stands at 32.15%.
Emefiele served as the CBN governor from June 4, 2014, until June 9, 2023. Following Emefiele’s suspension, President Bola Tinubu appointed Cardoso as the new CBN chief in September 2023, a decision that was promptly ratified by the Senate.
Under Cardoso’s leadership, the MPC has raised interest rates by 8.5% over the past year, increasing from 18.75% in September 2023 to 27.25% a year later. During Cardoso’s tenure, the naira has depreciated significantly, trading at over ₦1,600/$1 compared to approximately ₦700/$1 in September 2020.
When questioned about the effectiveness of the apex bank’s monetary policies, including the series of interest rate hikes and the collapse of foreign exchange windows, Cardoso reiterated that the economic situation is a direct consequence of his predecessor’s policies.
“You cannot separate the current circumstances from the events of the past year,” Cardoso stated, noting that while the economy grew at an average rate of 1.2% during Emefiele’s term, the money supply expanded by 12.6%. “This created a fundamental distortion,” he explained.
“We inherited a situation characterized by a loose money supply from 2017 to 2023, which resulted in excessive liquidity being injected into the economy.”
READ ALSO: CBN: Naira Falls 51.5% Against Dollar Under Cardoso
In 2015, the money supply stood at approximately N19 trillion, while by 2023, it had escalated to N54 trillion. This represents a significant increase, indeed a remarkable one. A considerable portion of this growth was attributed to the mechanisms of ways and means.
Essentially, the act of printing money led to a substantial amount of currency pursuing a relatively stable quantity of goods. It is crucial to understand this context.
Referred to as Ways and Means, the central bank provided short-term financial assistance to the Federal Government to address its budget deficits.
It is important to remember that in 2015, there was a notable decline in global oil prices. This decline highlighted the reality that Nigeria operates as a monolithic economy, heavily reliant on oil. Consequently, the drop in oil prices resulted in a decrease in foreign exchange reserves, which is vital to comprehend. During this period, the response involved reduced foreign exchange availability and the imposition of fixed exchange rates, which adversely affected the economy.
Cardoso further noted that efforts to unify the various exchange rates have yielded positive outcomes, leading to the elimination of multiple exchange windows for Nigerians.
He emphasized that the exchange rate has become more adaptable, allowing individuals to conduct transactions based on a willing buyer, willing seller model, in contrast to the previous system where multiple exchange rates hindered such transactions.
While acknowledging the difficulties faced by many, he expressed confidence that the measures being implemented are designed to place the nation’s economy on a path that avoids reverting to past inefficiencies. He believes these challenges are temporary and that the country will emerge from its current predicament.
Although these measures may be challenging, he recognizes their necessity in curbing excess liquidity in the economy, addressing high inflation, and attracting back portfolio investors who had previously withdrawn their investments.
