Olayemi Cardoso, the Governor of the Central Bank of Nigeria (CBN), emphasizes the importance of continuous vigilance and proactive actions to preserve monetary stability in the country. In his address at the 2025 Monetary Policy Forum on Thursday, titled “Managing the Disinflation Process,” Cardoso discussed the challenges and advancements in Nigeria’s monetary policy environment.
Cardoso points out that both domestic and international forces have contributed to the ongoing inflationary pressures over the past year. He points to notable advancements in boosting foreign reserves and stabilising the foreign exchange market in spite of these obstacles.
“Although inflationary pressures have remained due to global and domestic factors, we have made substantial progress in stabilizing the foreign exchange market, reducing exchange rate disparities, and increasing our foreign reserves to over $40 billion as of December 2024—the highest in three years,” Cardoso states.
However, he acknowledges ongoing issues such as domestic structural challenges, exchange rate fluctuations, and energy price adjustments, which continue to exert pressure on prices and economic activities. Cardoso points out that while structural factors play a key role in Nigeria’s inflation, monetary dynamics have also contributed to the price pressures.
Impact of Excess Liquidity and Monetary Policy Response
Cardoso addresses the impact of excess liquidity, particularly resulting from unconventional monetary policies since the COVID-19 pandemic. While these measures were designed to cushion economic shocks, he explains they have also led to inflation and foreign exchange instability.
“The liquidity injections, especially since the pandemic, have created a significant overhang. While intended to cushion the economy, they did not correspond to productivity growth. Instead, they have fueled inflation and increased foreign exchange volatility,” Cardoso adds.
He further notes that excess naira liquidity in the system has exacerbated demand-driven inflation, worsened by supply-side constraints. This highlights the need for discipline and a coordinated approach to monetary policy to restore stability.
In response, the CBN has initiated a tightening cycle, with the Monetary Policy Committee (MPC) implementing several measures throughout 2024, including adjustments to the monetary policy rate, aimed at curbing inflation and stabilizing the economy.
Outlook for 2025
Looking ahead, Cardoso expresses optimism that Nigeria is on the path to economic stability and disinflation. However, he emphasizes that bold policy measures are essential to consolidating the progress made so far.
“As we enter 2025, I am confident that we are on track to achieve disinflation. But we must remain committed to bold policy actions to further solidify our progress,” Cardoso states.
Cardoso also announces a new minimum capital requirement for banks, set to take effect in March 2026. This policy aims to strengthen the resilience and competitiveness of Nigeria’s banking sector, positioning it to support the government’s ambition of a $1 trillion economy.
“We are implementing a new minimum capital requirement for banks, effective March 2026, to enhance the resilience and global competitiveness of the banking sector, positioning it to support the goal of a $1 trillion economy,” he says.
Cardoso concludes by restating the CBN’s dedication to maintaining monetary stability and promising that the bank will keep a careful eye on market developments and take the required steps to keep the financial sector stable.
