Cardoso Credits Tight Monetary Policy for 10-Point Inflation Drop

Nigeria’s prolonged monetary tightening has been a decisive factor in slowing inflation, with internal research showing that the Central Bank of Nigeria’s policy stance accounted for as much as 10 percentage points of the recent decline in headline inflation.

The Governor of the Central Bank of Nigeria and Chairman of the Monetary Policy Committee, Olayemi Cardoso, disclosed this in a personal statement issued after the Monetary Policy Committee’s deliberations, describing the findings as strong evidence that tight monetary policy has been effective despite persistent domestic and global pressures.

According to Cardoso, the results underscore the importance of decisive and consistent policy actions in safeguarding price stability, particularly at a time when the economy faces structural challenges and external shocks.

Recent inflation data show a notable moderation in price pressures, with headline inflation easing steadily after peaking earlier in the year. Cardoso noted that the improvement was broad-based, cutting across headline, food, and core inflation, with the pace of disinflation strengthening in recent months.

He attributed the slowdown to a combination of factors, including reduced volatility in the foreign exchange market, easing food prices, and improved inflation expectations supported by a relatively firmer naira. He added that the exchange rate has become more market-driven and less volatile, while external reserves have strengthened due to reforms that improved capital inflows and reshaped Nigeria’s balance of payments dynamics.

Beyond inflation control, Cardoso said macroeconomic conditions have shown signs of improvement, citing rising investor confidence, stronger external buffers, and improving business and household sentiment. He noted that these developments were helping to support long-term investment decisions in key sectors of the economy.

However, the CBN governor cautioned that risks remain elevated. He pointed to ongoing global uncertainties and geopolitical tensions, as well as Nigeria’s designation by the United States as a country of concern over security issues, warning that such developments could have economic spillover effects.

On the domestic front, Cardoso identified the upcoming political cycle as a potential source of risk, noting that pre-election fiscal expansion has historically contributed to inflationary pressures, currency weakness, and stress in the external sector.

He stressed that while fiscal reforms are essential, they often take time to yield results and may introduce short-term challenges. As a result, he said monetary policy must remain vigilant, proactive, and responsive to early warning signals to prevent a reversal of recent gains.

Cardoso said discussions at the MPC meeting strongly favoured maintaining a tight policy stance, identifying excess system liquidity as a major threat to price stability. He explained that holding policy rates steady would reinforce confidence that current measures are working.

He added that improved alignment of overnight market rates within the standing facilities corridor reflects stronger monetary policy transmission, creating scope for more effective liquidity management.

Based on this assessment, Cardoso supported retaining the benchmark interest rate at 27 per cent, maintaining existing cash reserve requirements for banks, adjusting the standing facilities corridor, and keeping the liquidity ratio unchanged. While acknowledging that monetary policy alone cannot deliver sustainable growth, he said the current stance remains essential for preserving stability and creating the conditions for broader structural reforms.