Since he assumed the position in September 2023, the governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has taken aggressive measures to stabilize the economy as its administration has focused on curbing inflation, managing the volatility of the type of change and address the influence of the merchants of the black currency of Nigeria. .
According to Muhammad Jibrin Barde, economist and political, Muhammad Jibrin Barde despite these efforts, structural challenges, including excessive government spending and monetary fiscal misalignment, continue to undermine the effectiveness of monetary policy.
Barde, who is a former government candidate in the state of Gombe, said they fight growing inflation, the CBN has hardened monetary policy, which increases the monetary policy rate (MPR) through a cumulative 875 points to 27.5 percent In 2024.
This strategy according to him aims to reduce excess liquidity in the system, however, inflation remains third, reaching 34.8 percent in December 2024.
He said that the persistence of inflation is driven by factors such as increased fuel prices, exchange rate fluctuations and supply chain interruptions.
Barde in an opinion article said that although the CBN expects inflation to gradually decrease in 2025, success will depend on the federal government's ability to align tax policies with monetary tightening.
He said that without fiscal discipline, the high government spending will continue to feed inflation, undermining the impact of interest rate increases.
“The Governor Cardoso has taken significant measures to reform Nigeria's currency market. The unification of multiple exchange rate was an important policy change designed to eliminate arbitration opportunities and restore investors' confidence.
“This reform led to an increase of 79.4% in remittances through international money transfer operators, reaching $ 4.18 billion in the first three quarters of 2024.
“In addition, the CBN has been working to clear the accumulation of FX of $ 7 billion of Nigeria, with at least $ 2 billion already liquidated. These efforts have contributed to an increase in external reserves, which exceeded $ 40 billion, the highest level in almost three years. However, despite these interventions, Naira is still volatile, fluctuating under speculative pressures promoted by the activities of foreign exchange merchants in the parallel market, ”he said.
In the challenge of the parallel market, Barde said that the non -controlled operations of currency merchants of the black market remain a significant obstacle to the stability of the exchange rate.
He said that, unlike most economies, where parallel markets operate on a smaller scale, Nigeria's black market plays a disproportionately important role in determining exchange rates.
The economist said that the problem is exacerbated when the government injected the excess liquidity of Naira into the economy through budget allocations.
He said that this liquidity often makes its way in the parallel market, increasing the demand for dollars and further weakening the Naira.
To address this problem, Barde said that experts have recommended the criminalization of the FX trade in the black market, finishing CBN FX sales to parallel markets, improving the transparency of the FX market: implement stronger capital controls and increase the dollars not in oil.
By identifying excessive government spending as a stability barrier, Barde said that “another critical challenge that undermines the effectiveness of monetary policy is the lack of fiscal discipline. Despite CBN hardening efforts, the Nigerian government continues Participating in excessive expense, which injected excess liquidity into the system and feeds inflation.
“Recently, the member of the Monetary Policy Committee (MPC), Muthala Sabo Sagagi, said that government without control directly counteracts the impact of higher interest rates, which makes it difficult for the CBN to control inflation. While fiscal expense remains without control, monetary policy alone cannot stabilize the economy. “
To guarantee long -term stability, he said that Nigeria should strengthen fiscal responsibility laws to curb excessive loans, impose limits on the recurrent expenditure of the government at the time
In addition, he emphasized that the next exceed of the consumer price index (CPI) of Nigeria will update the reference year to 2023 and expand the basket of goods and services from 740 to 960 articles.
While this will provide a more precise measure of inflation, Barde said he will not directly alter inflationary trends.
“The monetary policies of the Cardoso governor have demonstrated a clear commitment to address the volatility of inflation and the exchange rate through orthodox monetary tools and market transparency initiatives.
“However, the key structural challenges, particularly the un controlled influence of the currency merchants of the parallel market, the excessive expenditure of the government and monetary fiscal misalignment, continuing to undermine the effectiveness of policies,” Barde added.
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