The Governor of the Central Bank of Nigeria, Olayemi Cardoso, has defended the CBN's latest interest rate decision, which surprised financial markets, saying improved economic conditions and corrected policy transmission mechanisms informed the move. Speaking at the International Monetary Fund and World Bank Annual Meetings in Bangkok, Cardoso said Nigeria's external reserves had reached their highest level in 18 years, inflation was declining consistently and economic growth remained reasonable, providing scope to address monetary policy weaknesses.
Cardoso highlighted several developments that strengthened the policy framework before the decision. The CBN and fiscal authorities had signed a memorandum of understanding to improve coordination, and the introduction of an overnight financing rate had provided clearer visibility of interest rate conditions. These steps, combined with strong macroeconomic conditions, created an opportunity to tackle longstanding problems in monetary policy transmission that could have been addressed earlier.
The governor emphasised that Nigeria's monetary policy must reflect the country's specific economic circumstances rather than mechanically following other central banks. Nigeria's inflation cycle differed from many economies because major domestic policy changes, including foreign exchange harmonisation and the removal of petrol subsidies, occurred at different points in the global inflation cycle. This meant the CBN's Monetary Policy Committee must assess conditions independently.
Cardoso stressed that the successful management of the unexpected decision depended on credibility with markets. He explained that the CBN had spent considerable time communicating the rationale for the move to journalists and market participants, detailing the economic challenges, reforms implemented and progress achieved. The committee's structure, comprising seven internal and five external members, ensured robust deliberations and prevented groupthink, with external members bringing independent perspectives that strengthened debate.