Yemi Cardoso, Governor of the Central Bank of Nigeria (CBN), has attributed the rising high interest rates to the excessive ₦27 trillion loan facility issued to the Federal Government. Speaking at a CEO forum organized by Business Day in Lagos on July 11, Cardoso highlighted the negative economic impact of the surge in Ways and Means advances and intervention programs.
The Senate had approved a ₦22.7 trillion Ways and Means loan on May 23, 2023, following a request by former President Muhammadu Buhari on December 28, 2022. Cardoso emphasized that the current interest rate of 26.25 percent, combined with inflation at 33.95 percent, has strained commercial banks’ lending capacity, especially affecting the manufacturing sector and businesses.
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Cardoso acknowledged the CBN’s awareness of the adverse effects of these loan facilities and stated that measures are being taken to prevent similar situations in the future. He clarified that the Monetary Policy Committee (MPC), not the CBN governor, sets the interest rates based on data trends to manage inflation.
“The MPC has made it very clear that for them the major issue is taming inflation and has also made it very clear that they will do whatever is necessary to tame inflation,” Cardoso said. “Sadly, we have a situation where a lot of money supply went into the system. We all saw Ways and Means soared to ₦27 trillion. We saw interventions of ₦10.5 trillion. It has its consequences. In large respect, that is what we are paying for now.”
Addressing the volatility of the Naira, Cardoso explained the measures taken to stabilize the currency since he assumed leadership. He highlighted the discovery of systemic distortions, including illicit financial flows and non-compliance with regulations, which necessitated immediate intervention.
“We found that there were distortions within the system, such as illicit flows and rule violations, which we needed to address for a smoother and more efficient market,” Cardoso explained. He acknowledged that the process of correcting these issues sometimes met with resistance. “In the process of doing this, there are pushbacks. We believe that a portion of the volatility and wide swings in the exchange rate was due to these adjustments,” he noted.
Cardoso expressed confidence that stakeholders are now more comfortable with the CBN’s approach to managing the market. He observed that the need for speculative actions, such as frontloading, has diminished. “Even with portfolio investors, some left initially but returned when they saw that there was a clear plan being implemented in a direction they could understand.”
According to Cardoso, the transparency introduced by the CBN is beginning to yield positive results, contributing to the stabilization of the naira. “A lot of the wide swings we saw are gradually smoothing out due to the increased transparency in the market,” he concluded.
