The Naira has lost more than half its value over the past year since Yemi Cardoso took office as the Governor of the Central Bank of Nigeria (CBN). Data from the FMDQ shows that the local currency fell from N747.76/$1 on September 22, 2023, to N1,541.52/$1 as of September 20, 2024, marking a 51.49% depreciation.
Despite the CBN’s efforts to stabilize the currency, this decline has occurred which include a significant increase in Nigeria’s foreign exchange (forex) reserves.
FX Reserves Increase By $4.12 Billion
Nigeria’s foreign exchange (FX) reserves have grown by 12% over the past year, rising from $33.28 billion on September 22, 2023, to $37.39 billion on September 19, 2024, reaching the highest level under Bola Tinubu’s administration.
This $4.12 billion increase in reserves reflects the Central Bank of Nigeria’s (CBN) efforts to enhance liquidity in the forex market and manage external shocks.
However, despite this growth, the naira continues to experience sharp depreciation, struggling with external pressures and internal fiscal imbalances.
Since taking over as CBN Governor on September 22, 2023, Yemi Cardoso has implemented several policies aimed at combating inflation, strengthening the local currency, and promoting transparency in the market.
However, these reforms have yet to yield the intended stabilization, as the naira’s depreciation highlights ongoing challenges in managing the nation’s currency.
While the increase in FX reserves is a positive signal for liquidity management, the growing gap between supply and demand in the forex market, combined with high inflation and wavering investor confidence, continues to exert pressure on the naira.
Increase In Interest Rates
Under Yemi Cardoso’s leadership, the Central Bank of Nigeria (CBN) has increased the monetary policy rate (MPR) four times to combat inflation and promote economic stability.
The first hike raised the rate from 18.75% to 22.75%, the second to 24.75%, the third to 26.25%, and most recently, in July 2024, the Monetary Policy Committee (MPC) increased the rate by 50 basis points to 26.75%.
These increases, totaling 800 basis points since Cardoso’s appointment, are part of efforts to address the country’s persistent inflation issues, including high core and food inflation.
The MPC is scheduled to meet on September 23 and 24, 2024, to decide whether to decrease, retain, or further increase the MPR.
Financial experts have called for a pause on interest rate hikes to stabilize Nigeria’s struggling economy. Professor Uche Uwaleke, a financial economist and Director at the Institute of Capital Market Studies, Nasarawa State University Keffi, urged the MPC to refrain from raising interest rates, emphasizing the need for economic stabilization. Uwaleke pointed out that the recent moderation in inflation, recorded in July and August, provides a compelling case for halting further rate hikes.
Earlier reports indicate that at least three members of the MPC voted to retain the MPR at 26.25% during the CBN’s MPC meeting on July 22-23, 2024.
While the majority opted for a moderate increase to curb inflationary pressures, three members, including Lydia Shehu Jafiya, Murtala Sabo Sagagi, and Aloysius Uche Ordu, argued that maintaining the MPR at its previous level was more appropriate given the current economic environment.
The three members, who stressed the need for a cautious approach to balancing inflation control with the need to support economic growth and stability, makeup about 27% of the 11 MPC members.
Meanwhile, Nigeria’s inflation rate dropped for the first-time in 19 months, at 33.40% in July, down from 34.19% in June 2024. This marked the first decline in the headline inflation rate since December 2022, when it last dropped to 21.34%.
Also, data released by the National Bureau of Statistics (NBS) revealed that Nigeria’s headline inflation rate eased to 32.15% in August 2024 down from the 33.40% recorded in July 2024, reflecting a decrease of 1.25%-points. It marked the second consecutive monthly slowdown in inflation after easing in the previous month.
Experts rate Cardoso’s One Year In Office
Dr Aliyu Ilias, a development economist, had on Sunday described Cardoso’s approach as “topsy-turvy”, which is yet to yield significant results.
On the decelerated inflation rate, he said “What we saw recently in terms of reduction in inflation is too marginal. Also, it is the harvest period that has led to the drop.”
Rating the CBN governor, Ilias added: “He is sacrificing growth because he wants to reduce inflation. I will score him below average. He needs to do more and be more strategic with his approach.”
However, a financial analyst and founding partner at McBrain & Company, Brain Essien, told Nairametrics that: “he (Cardoso) hasn’t done too bad. Cardoso was handed an economy that was sickly.”
He added: “His objective was inflation-targeting, and so far so good, we have had two consecutive decelerated inflation, which is good.”
Essien also called on the CBN to end dollarisation in the country and make the naira the focal point of the economy.
He highlighted the importance of enhancing the naira’s value, stating, “The CBN should look for more creative ways to strengthen the naira itself. Otherwise, it will keep sinking against the dollar, and there is very little we can do about it.”
Additionally, Essien suggested that the CBN’s Monetary Policy Committee (MPC) maintain the current Monetary Policy Rate (MPR) of 26.75%, cautioning that any change, especially one exceeding +/- 25 basis points, could have significant consequences.
