The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has ascribed rising high interest rates to the Federal Government’s unsustainable ₦27 trillion borrowing. Cardoso, speaking at a Business Day CEO roundtable in Lagos on July 11, 2024 stressed the detrimental effects of the increase in Ways and Means and intervention programs on the economy.

Cardoso stated that the present interest rate of 26.25 percent, along with inflation of 33.95 percent, has put a strain on commercial banks’ lending capacity, hitting the manufacturing and business sectors in particular. Cardoso highlighted that the Monetary Policy Committee (MPC), not the CBN Governor, sets interest rates based on data trends to manage inflation.

He emphasized that the current high interest rates are only temporary till inflation reduces. In his words, ‘Nigerians indirectly paying for CBN’s unregulated lending to FG through rising inflation’ “The MPC has made it very plain that for them, the key problem is managing inflation, and they will do whatever is necessary to tame inflation.

“Unfortunately, we have a scenario where a large amount of money has entered the system. We all observed ways and means that increased to N27 trillion. We have N10.5 trillion in interventions. It has its effects. In many ways, that is what we are currently paying for,” Cardoso said.

“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,” according to Cardoso.

He noted that the process of rectifying these shortcomings was occasionally faced with opposition. “There are pushbacks while doing this. “We believe that these adjustments contributed to some of the volatility and wide swings in the exchange rate,” he added.

Cardoso expressed optimism that stakeholders are now more comfortable with the CBN’s market-management approach. He discovered that the necessity for speculative acts, such as frontloading, has decreased. “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 CBN’s transparency is beginning to produce beneficial results, helping the Naira’s stability. “A lot of the wide swings we saw are gradually smoothing out due to the increased transparency in the market,” he explained. The CBN Governor’s statements emphasize the significance of regulatory compliance and market openness in achieving currency stability and regaining investor trust.

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