1 week ago
22
From Adanna Nnamani, Abuja
Nigeria’s relentless battle against soaring inflation has reached a critical turning point, with the Central Bank of Nigeria (CBN) charting a bold new course, which is consistent with an inflation-targeting framework, designed to anchor price stability and restore economic confidence.
The paradigm shift, already embraced by several African central banks, is expected to enhance purchasing power, bolster disposable income, stimulate aggregate demand, and drive productive economic activities.
For businesses and households alike, inflation remains a pressing challenge, eroding real incomes and increasing the cost of living. Its far-reaching impact influences everything from consumer behavior to business expansion and investment decisions. Recognizing inflation’s role in determining economic well-being, the CBN has reaffirmed its commitment to price stability as a core mandate, with a focus on adopting an inflation-targeting approach that prioritizes sustainable economic growth.
The transition represents a significant shift from the exchange rate-targeting framework, as the apex bank aligns its monetary policy tools to directly influence inflationary trends. Crucially, the framework’s success hinges on the support of the Nigerian people, requiring transparency, strategic implementation, and coordinated fiscal-monetary policies.
Hosting MPF to guide economic strategy
As part of its intensified efforts to curb inflation, the CBN recently convened the Monetary Policy Forum 2025, a high-profile gathering of fiscal policymakers, legislators, private sector leaders, development partners, financial experts, and scholars. Themed “Managing the Disinflation Process,” the forum underscored the bank’s commitment to fostering robust dialogue, improving monetary policy communication, and aligning strategies to stabilise the economy.
Speaking at the event, CBN Governor Olayemi Cardoso reiterated the apex bank’s strong focus on price stability, emphasising its transition to inflation targeting as a tool to restore purchasing power and ease economic hardship.
“Our disciplined monetary policy stance has already yielded measurable progress,” Cardoso stated, citing relative stability in the foreign exchange (FX) market, narrowing exchange rate disparities, and an increase in external reserves to over $40 billion as of December 2024.
He stressed that effective disinflation requires not only sound policies but also seamless coordination between fiscal and monetary authorities to anchor market expectations and sustain investor confidence.
Strengthening banking resilience for $1trn economy
Beyond inflation control, the CBN is reinforcing the banking sector’s resilience. To achieve this, the bank has introduced new minimum capital requirements for banks, effective March 2026, ensuring financial institutions are adequately capitalized to support Nigeria’s ambition of becoming a $1 trillion economy.
Additionally, the Nigeria Foreign Exchange Code (FX Code) was launched this week, marking a bold step toward enhancing transparency, fairness, and efficiency in FX transactions. Built on six core principles, this framework represents a renewed commitment from financial institutions to rebuild trust in the foreign exchange market.
Financial inclusion remains central to the CBN’s agenda. Under the National Financial Inclusion Strategy, the Women Entrepreneurs Finance (We-Fi) initiative is actively closing the gender gap by expanding women’s access to financial services and digital tools.
The bank’s FX reforms are also yielding results, with remittances through International Money Transfer Operators (IMTOs) soaring 79.4 per cent to $4.18 billion in the first three quarters of 2024. In a major policy shift, the CBN has lifted the 2015 restriction barring 41 items from accessing FX at the official market, further boosting trade and investment.
These reforms signal the CBN’s broader ambition: to cultivate an inclusive and resilient economic environment that can withstand external shocks and ensure sustainable growth.
Economy remains attractive despite inflation pressures
Despite inflationary pressures, Nigeria continues to attract domestic and foreign investment, underpinned by strong macroeconomic fundamentals and a resilient banking sector.
CBN Monetary Policy Committee (MPC) member Bala Bello highlighted key indicators reinforcing investor confidence, including: a remarkable increase in external reserves to $40.88 billion as of November 21, 2024, up from $40.06 billion at the end of October; astable exchange rate environment, supporting Nigeria’s position as an attractive investment destination; sound financial system indicators, with major prudential ratios—capital adequacy, liquidity, and non-performing loans, remaining within regulatory limits.
He also noted strong credit expansion to key growth sectors such as agriculture, manufacturing, and commerce, playing a vital role in stimulating economic activity and supporting output performance.
Stress tests confirm that Nigeria’s banking sector remains robust, withstanding potential macroeconomic shocks. However, vigilance is required to sustain stability in the face of lingering global and domestic risks.
Positive GDP growth amidst global headwinds
Despite external economic pressures, Nigeria’s Real Gross Domestic Product (GDP) grew by 3.46 per cent in Q3 2024, improving from 3.19 per cent in Q2 and 2.54 per cent in the same period of 2023.
This growth was driven by both the oil and non-oil sectors, with a notable contribution from the services industry. The non-oil sector expanded by 3.37 per cent in Q3, up from 2.80 per cent in Q2, while the oil sector grew 5.17 per cent year-on-year.
MPC member Aloysius Ordu noted key improvements in Nigeria’s external accounts: A surplus of $6.29 billion in Q3 2024 (compared to $5.14 billion in Q2), signaling a stronger current account balance; foreign reserves at $40.88 billion, equivalent to 16.9 months of import cover and relative stability in the exchange rate, bolstered by increased capital inflows.
MPC member, Bandele Amoo, further emphasised Nigeria’s stable Balance of Payments (BOP) position, with a $3.79 billion surplus in Q3 2024, driven by positive balances in current account and net asset acquisitions. Portfolio inflows also remained robust, recording a net inflow of $0.59 billion as of November 2024.
With total foreign exchange flows through the economy reaching $6.18 billion in September 2024, Nigeria’s external reserves are projected to rise further by year-end, supported by: full deregulation of the downstream oil sector; reduced petroleum product importation and increased FX inflows.
Global inflation trends and Nigeria’s outlook
On the global stage, inflation is projected to decline to 3.5 per cent in 2025, down from a peak of 9.4 per cent in 2022. Speaking at the Chartered Institute of Bankers of Nigeria (CIBN) Bankers Dinner, Governor Cardoso highlighted how major central banks are gradually easing monetary policies, reopening access to international capital markets for emerging economies.
However, global growth remains sluggish at 2.6 per cent, hindered by; geopolitical tensions; China’s economic slowdown and trade fragmentation.
For Sub-Saharan Africa, growth is modest at 3.6 per cent, still below pre-pandemic levels. While monetary tightening has curbed inflation in some countries like South Africa and Kenya, many African nations continue to struggle with double-digit inflation and heavy debt burdens.
The CBN’s inflation-targeting framework is positioned as a proactive response to Nigeria’s economic challenges, ensuring monetary policy remains forward-looking, credible, and resilient.
The MPC emphasised that tackling inflation requires a deepened collaboration between monetary and fiscal authorities, ensuring policy synchronization for price stability and sustainable growth.
With the CBN’s inflation-targeting transition, FX reforms, and financial sector resilience measures, experts says Nigeria is on track to restore economic confidence, protect consumer purchasing power, and foster long-term prosperity.
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