Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), has explained that the decision to float the Naira in the foreign exchange market was a strategic move aimed at closing the gap between the official and parallel exchange rates, thus restoring market credibility.
Cardoso made this statement over the weekend while addressing members of the Harvard Club of Nigeria in Lagos.
Cardoso noted that his predecessors had considered floating the Naira but ultimately abandoned the idea, fearing massive depreciation and its ripple effects on the macroeconomic landscape.
However, Cardoso, speaking for the first time since assuming office a year ago, said the floatation was necessary to tackle the speculative trading that thrived due to the disparity between the official and black market rates.
“The decision to float the naira, although met with public criticism, was essential to align the official exchange rate with market reality. The disparity between the official and parallel rates encouraged arbitrage and speculation, eroding trust in the market,” Cardoso said.
Cardoso acknowledged that the CBN’s credibility was at the core of its policy actions, adding that, “Without credibility, no policy, however well-intentioned, can succeed.”
He stressed that the bold move was essential for addressing long-standing inefficiencies, adding that the speculative trading had reduced since the policy’s implementation, and gradual stability was returning to the currency markets.
In his address titled “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation,” Cardoso also highlighted the CBN’s efforts to control inflation, which remains a primary focus.
He noted that the National Bureau of Statistics (NBS) reported recent declines in inflation for July and August 2024, indicating that the CBN’s actions were yielding positive results.
Cardoso defended the CBN’s decision to raise the Monetary Policy Rate (MPR) to 27.25%, describing it as a “bold move” necessary to curb excess liquidity and rein in inflation. He added that, while higher interest rates were painful for borrowers, they were crucial for long-term economic stability.
“Leadership is about making hard choices to secure long-term stability over short-term comfort in moments like these,” Cardoso said.
