Interest Rates to Stabilize After Inflation Tamed, Says CBN Governor

Dr. Olayemi Cardoso, Governor of the Central Bank of Nigeria (CBN), announced plans to slow down the increases in the benchmark interest rate once inflation is under control.

The declaration came during the launch of the book ‘The Power of One Man: How the Soludo-Engineered Consolidation Transformed Nigerian Banks to Global Players,’ written by Ray Echebiri, on Saturday in Lagos.

Represented by Phillip Ikeazor, the CBN’s Deputy Governor of Financial Stability, Cardoso said it is important to maintain high interest rates to mitigate the risk of hyperinflation and its severe consequences.

“Once you do not tame and control inflation and you get into hyperinflation, it takes you several years to get out of it,” Ikeazor said.

He cited examples of a South American country and an East African nation struggling with hyperinflation despite significant natural resources.

Cardoso stressed that the CBN’s focus remains on its core mandates of price stability, maintaining a stable exchange rate, and fostering economic growth.

However, he highlighted the critical need to avoid hyperinflation, which would render monetary policy tools ineffective. “It is important that we avoid that,” he asserted.

Addressing the timeline for maintaining high rates, Cardoso stated, “That will be as long as we can control and can reverse galloping inflation. Once we can do that, then we maintain.”

He drew parallels with Western nations, which have kept rates high for extended periods to curb inflation, noting that they have only recently ceased rate hikes without reducing rates yet.

Cardoso’s comments align with his previous statements in May, where he affirmed that the CBN would continue to raise interest rates until inflation was subdued.

According to a Financial Times report, he emphasized the need for the Monetary Policy Committee (MPC) to “do whatever is necessary” to rein in inflation. “They will continue to do what has to be done to ensure that inflation comes down,” he remarked.

The National Bureau of Statistics reported a headline inflation rate increase to 33.95 percent in May 2024, up from 33.69 percent in April.

In response, the MPC raised the benchmark lending rate by 150 basis points to 26.25 percent from 24.75 percent.

Former President Olusegun Obasanjo, represented by former Cross River Governor Donald Duke at the event, called for synergy between fiscal and monetary policies to revolutionize the banking industry and achieve economic stability.

He praised Anambra State Governor and former CBN Governor Professor Chukwuma Soludo for his courageous banking sector consolidation in 2005, which significantly stabilized and grew the sector.

Lagos State Governor Babajide Sanwo-Olu also commended Soludo’s efforts but highlighted the current economic challenges.

He urged the CBN to take decisive actions to stabilize the economy, particularly in managing interest rates and inflation, to alleviate the pressures faced by the private sector.

“The private sector is currently experiencing tough times due to various economic challenges. The CBN must take swift and effective measures to stabilize the economy. Learning from the past reforms can guide us through these turbulent times,” Sanwo-Olu said.

Soludo, reflecting on the 2005 consolidation challenges, expressed pride in the achievement and urged the current CBN leadership to remain resolute in their efforts to recapitalize the banks to keep pace with the expanding economy.

As Nigeria navigates these economic challenges, Cardoso’s commitment to controlling inflation and stabilizing interest rates offers a glimmer of hope for a more stable economic future.