MON SEPT 22 2025-theGBJournal| The Central Bank of Nigeria (CBN) plays a pivotal role in shaping Nigeria’s macroeconomic trajectory.
Over the past two years, under the leadership of Mr Yemi Cardoso, the CBN has undertaken comprehensive reforms aimed at restoring confidence, strengthening governance, and repositioning the financial system to support inclusive and sustainable economic growth.
The Centre for the Promotion of Private Enterprise (CPPE) examines the achievements, challenges, and strategic priorities for the CBN moving forward.
Nigeria’s financial system has historically faced challenges, including foreign exchange market distortions, weak corporate governance, excessive monetary financing, and limited access to affordable credit.
These issues contributed to macroeconomic instability, inflationary pressures, and suboptimal economic performance. The Cardoso-led CBN has sought to address these problems through bold reforms, focusing on transparency, stability, and credibility.
Key Achievements in Cardoso’s Two years
Foreign Exchange Reform
One of the most significant reforms under Mr. Cardoso has been the liberalization and unification of the foreign exchange (FX) market. Key outcomes include:
-Transparency and Credibility: The elimination of multiple FX windows reduced opportunities for arbitrage and corruption
-Improved Liquidity: Greater confidence has attracted higher inflows from autonomous sources, and
-Market Efficiency: Price discovery has improved, allowing for a more efficient allocation of FX resources.
Institutional Strengthening
The CBN has made progress in improving governance and autonomy:
-Corporate Governance: Strengthened oversight mechanisms and internal controls.
-Operational Independence: Reduced political interference in policy decisions, improving professionalism.
-Monetary Discipline: Curtailed unrestrained monetary financing, reducing fiscal dominance and macroeconomic distortions.
Financial System Stability
Maintaining confidence in the financial system has been a core priority:
-Banking Sector Resilience: Introduced recapitalization measures to enhance the soundness of banks.
-Risk Management: Strengthened regulatory frameworks to safeguard stability in the face of global and domestic shocks.
Inflation and Macroeconomic Stability
Through a mix of monetary policy tools—including interest rate hikes, liquidity management, and market reforms—the CBN has contributed to the recent deceleration in inflation and restoration of macroeconomic stability.
Emerging Concerns
Aggressive Monetary Tightening
While necessary to combat inflation, the current stance is highly restrictive:
-Policy Rates: Monetary Policy Rate (MPR) at 27.5% and Cash Reserve Ratio (CRR) at 50% have considerably pushed up the cost of funds.
-Credit Constraints: Elevated lending rates have suppressed private sector borrowing, particularly in manufacturing, Agriculture, SMEs, real estate and other sectors.
-Crowding-Out Effect: There is a growing risk that private investment could be displaced by high-yield government instruments.
Response to Market Failures
A fully market-based approach, while improving efficiency, has not addressed structural financing gaps:
-SME Financing: Small and medium enterprises face limited access to affordable credit.
-Long-Term Capital: Infrastructure, industrial, agricultural, construction, and real estate projects lack patient capital and affordable long-term funding mechanisms.
Policy Recommendations
Balance Price Stability with Growth
-Gradual Easing: Calibrate CRR and MPR downward as inflation moderates to create a more enabling credit environment.
-Balanced Policy Mix: Complement monetary tightening with supply-side measures to address structural inflation drivers.
Address Structural Financing Gaps
-Targeted Interventions: Develop credit guarantee schemes and concessionary financing programs for SMEs and critical sectors of the economy.
-Long-Term Funding: Promote development finance instruments and deepen the domestic bond market to mobilize resources for infrastructure.
Sustain Governance and Transparency Gains
-Institutionalize Reforms: Entrench corporate governance standards to ensure continuity beyond current leadership.
-Independence of the CBN: Strengthen legal frameworks that protect CBN’s autonomy from political pressures.
Enhance Policy Communication
-Transparency: Maintain clear and predictable policy communication to manage market expectations.
-Stakeholder Engagement: Broaden consultation with industry players and development partners to foster inclusive decision-making.
Conclusion
The leadership of Mr. Yemi Cardoso has brought about a significant transformation of Nigeria’s financial system, with gains in transparency, credibility, and stability.
The next phase of reform must focus on achieving a more balanced policy stance that supports growth while preserving macroeconomic stability.
Addressing structural financing gaps and sustaining governance reforms will be critical for unlocking the financial sector’s full potential as a driver of inclusive economic development.
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