Cardoso Keeping the Gear to Tame Inflation
By Lawal Dahiru Mamman,
Inflation is a complex economic phenomenon that goes beyond just a number; it is a barometer of citizens’ financial well-being. When on the high side, it slowly chips away at the value of money, making it tougher for people to make ends meet and afford basic goods and services.
High inflation also creates a fog of uncertainty, making it challenging for businesses and individuals to predict future costs and revenues, and plan accordingly. It also exacerbates income inequality, as those who own assets like properties or stock that increase in value during inflation tend to benefit at the expense of those who do not.
The effects of inflation became manifestly apparent over the past two years, when it soared to a dizzying 34.8%. Whilst this figure falls short of the astronomical 72.84% recorded in 1995, a consequence of economic instability and ill-conceived monetary policies at the time, its impact has been nonetheless severe.
During this period, the Central Bank of Nigeria (CBN) continued to navigate the complex landscape of Nigeria’s economy, some would say typical of our nation. Governor Olayemi Cardoso who is at the helm of affairs went full throttle to curb the inflation.
His administration has made significant moves to salvage the situation, managing exchange rate volatility, and addressing the influence of black-market currency traders; however, despite these efforts, structural challenges persist, undermining the effectiveness of monetary policy.
According to economist and politician Muhammad Jibrin Barde, the CBN’s aggressive tightening of monetary policy, which included raising the Monetary Policy Rate (MPR) by 875 basis points to 27.5% in 2024, aims to reduce excess liquidity in the system but, inflation remained stubbornly high, reaching 34.8% in December 2024.
The persistence of inflation was attributed majorly to factors such as rising fuel prices, exchange rate fluctuations, and supply chain disruptions. To combat this, experts emphasise the need for fiscal discipline, warning that high government spending will continue to fuel inflation, undermining the impact of interest rate hikes.
Recommendations were made to strengthen fiscal responsibility laws, with a view to curbing excessive borrowing, imposing limits on recurrent government expenditure, and prioritising capital investments, all of which serve to underscore the importance of fiscal discipline.
The CBN then also recognised that to tame inflation, it was crucial to align fiscal policies with monetary tightening, a harmonisation vital for the success of inflation-targeting policies. A synchronisation to ensure that efforts are effective and sustainable. An alignment which will also help to reduce the risk of fiscal dominance, where excessive government spending undermines the apex bank’s ability to control inflation.
Again, to tackle inflation and exchange rate volatility, it implemented structural reforms that promote market transparency and orthodoxy. This includes initiatives aimed to enhance the transparency of monetary policy decisions, improve communication with stakeholders, and strengthen the independence of the central bank to reduce the risk of economic instability and promote a more favourable business environment.
But it should not be in this alone. The nation must also reduce reliance on oil revenues and promote sustainable growth, enhance revenue collection and diversification of non-oil sectors by incentivising investment in sectors such as agriculture, manufacturing, and services.
Diversifying our revenue streams can reduce our vulnerability to oil price shocks and promote more inclusive and sustainable economic growth.
As the CBN anticipates a gradual decline in inflation throughout 2025, the results of its policies thus far have offered a glimmer of hope. Notably, we have witnessed a remarkable decline in the inflation rate, from 34.8% to 24.48% in February, which suggests that efforts are beginning to yield positive results.
To sustain the tempo, it is important that the federal government aligns its fiscal policies with monetary tightening through addressing the structural challenges and implementing the recommended reforms. With this Nigeria can ensure long-term economic stability and control inflation.
Governor Cardoso’s commitment to tackling inflation and exchange rate volatility is commendable. However, as Barde notes, “key structural challenges particularly the unchecked influence of parallel market currency traders, excessive government spending, and fiscal-monetary misalignment continue to undermine policy effectiveness”.
It is then essential that the CBN and the federal government work together to address these challenges and keep the gear in order to bring inflation to check for the good of all Nigerians.
