The Central bank Governor, Mr Olayemi Cardoso has revealed that the under him took the bold step of floating the naira in the foreign exchange market in order to bring the official exchange rate closer to market reality.
He stated this while addressing members of the Harvard club of Nigeria in Lagos on the topic “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation”. He explained that the floatation policy was meant to address the disparity between the official and parallel rates which encouraged arbitrage and speculation which erodes trust in the market.
Cardoso recalled that upon assumption of duty, he understood that the credibility of the Central Bank of Nigeria (CBN) had to be the bedrock of the actions he and his team took.
According to him “He explained that the floatation policy was meant to address the disparity between the official and parallel rates which encouraged arbitrage and speculation which erodes trust in the market.
Cardoso recalled that upon assumption of duty, he understood that the credibility of the Central Bank of Nigeria (CBN) had to be the bedrock of the actions he and his team took.
According to him “Without credibility, no policy, however well-intentioned, can succeed. Floating the naira, a decision met with considerable public criticism, was necessary to bring the official exchange rate closer to market reality. ‘‘The disparity between the official and parallel rates had encouraged arbitrage and speculation, eroding trust in the market.
“Credibility is earned by consistency. The decision to close this gap, while painful in the short term, sent a message to market participants that the CBN was committed to transparency and sound monetary policy,” he added, noting that speculative trading had been reduced, and stability was gradually returning to the currency markets.
He noted that containing inflation remains the bank’s core mandate but however acknowledged that the CBN was yet to meet its target.
However, he stressed that recent declines reported by the National Bureau of Statistics (NBS) in July and August 2024 showed that the CBN was moving in the right direction.
He explained further “Our decision to raise the Monetary Policy Rate (MPR) to 27.25% was a bold move. Higher interest rates, while painful for borrowers, are necessary to curb excess money in circulation and control inflation. Leadership is about making hard choices to secure long-term stability over short-term comfort in moments like these.’’
