Cardoso: Higher Interest Rates Hurt Borrowers but Are Essential for Controlling Inflation

The governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, described the decision to raise the Monetary Policy Rate (MPR) to 27.25 percent as a bold move.

According to him, higher interest rates, “while painful for borrowers, are necessary to curb excess money in circulation and control inflation.”

He emphasized that leadership involves making difficult choices to ensure long-term stability rather than opting for short-term comfort, especially in challenging times like these.

Cardoso spoke in Lagos over the weekend while addressing members of the Harvard Club of Nigeria on the topic “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation.”

He also stated that the CBN’s decision to implement the Electronic Foreign Exchange Matching System (EFEMS) is based on the belief that trust is fundamental to central banking.

He noted that this initiative aims to enhance transparency and improve oversight of foreign exchange transactions.

“Our decision to implement the Electronic Foreign Exchange Matching System (EFEMS) is rooted in this understanding.

“By enhancing transparency and providing more accurate oversight of forex transactions, we send a strong signal that the CBN is serious about fair and efficient markets.”

Cardoso emphasized that leadership, particularly as the head of a central bank, often involves making challenging and sometimes unpopular decisions.

He highlighted that the bank is a listening institution, willing to reassess its decisions if they do not align with its original goals.

“In the face of economic challenges, it is imperative to focus on core objectives—restoring the credibility of the institution, building trust in the financial system, and, most critically, containing inflation. These are not just strategic goals; they are foundational to any meaningful recovery,” he said.

While stating that containing inflation remains the bank’s core mission, he acknowledged that the CBN has not yet met its target.

However, he pointed out that the recent declines reported by the National Bureau of Statistics (NBS) in July and August 2024 indicate that the CBN is moving in the right direction.