The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso has attributed the rising high interest rates to the excessive ₦27 trillion loan facility issued to the Federal Government.
Recall that the Senate approved a ₦22.7 trillion Ways and Means loan on May 23, 2023, thereby securitizing the debt. This approval followed a request by former President Muhammadu Buhari on December 28, 2022, asking the lawmakers to take this action
Speaking at a CEO forum organized by Business Day in Lagos on July 11, Cardoso emphasized the negative consequences of the surge in Ways and Means and intervention programs on the economy.
Cardoso pointed out that the interest rate, currently at 26.25 percent, coupled with inflation at 33.95 percent, has pressured commercial banks’ lending capacity, particularly affecting the manufacturing sector and businesses.
He noted that the CBN is aware of the adverse effects of these loan facilities and is working to prevent future occurrences.
Cardoso clarified that the Monetary Policy Committee (MPC), not the CBN governor, sets the interest rates based on data trends to manage inflation.
He stressed that the current high rates are a temporary measure until inflation moderates.
His words, ‘Nigerians indirectly paying for CBN’s unregulated lending to FG through high inflation’
“The MPC has made it very clear that for them the major issue is taming inflation and has also made it very clear that they will do whatever is necessary to tame inflation.
“Sadly, we have a situation where a lot of money supply went into the system. We all saw ways and means soared to N27 trillion. We saw interventions of N10.5 trillion. It has its consequences. In large respect, that is what we are paying for now,” Cardoso added.
Cardoso on Naira volatility
Speaking on the volatility of the Naira, Cardoso explained the measures taken to stabilize the currency since assuming leadership. Cardoso highlighted the discovery of systemic distortions, including illicit financial flows and non-compliance with regulations, which necessitated immediate intervention.
“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,” Cardoso said.
He acknowledged that the process of correcting these issues sometimes met with resistance. “In the process of doing this, there are pushbacks. We believe that a portion of the volatility and wide swings in the exchange rate was due to these adjustments,” he noted.
Cardoso expressed confidence that stakeholders are now more comfortable with the CBN’s approach to managing the market. He observed that the need for speculative actions, such as frontloading, has diminished. “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 transparency introduced by the CBN is beginning to yield positive results, contributing to the stabilization of the Naira. “A lot of the wide swings we saw are gradually smoothing out due to the increased transparency in the market,” he concluded.
The CBN Governor’s remarks underscore the importance of regulatory compliance and market transparency in achieving currency stability and restoring investor confidence.