The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, has said stronger economic buffers and closer fiscal and monetary coordination gave the bank confidence to cut interest rates by 350 basis points in September. He made the case even though the move risked unsettling the markets.
Cardoso spoke at a panel session on how central banks decide, held during the IMF and World Bank meetings in Bangkok, Thailand.
Why the Bank Acted
The Monetary Policy Committee (MPC) lowered the Monetary Policy Rate from 26.5 per cent to 23 per cent. The cut surprised the markets.
According to Cardoso, Nigeria’s external reserves are at their highest level in 18 years. Inflation has kept falling, and growth continues at a reasonable pace. These conditions, he said, gave the MPC room to fix a weakness in how monetary policy filters through the economy.
“We have the buffers, we’re in a good place, and the macroeconomic indicators are looking good,” he said.
He added that the bank was in a good position to do something it could have done earlier.
Fiscal and Monetary Coordination
Cardoso said the fiscal and monetary authorities have signed a memorandum of understanding (MoU) to keep policy direction aligned. He said the move was well received.
The CBN has also introduced an overnight financing rate. It gives clearer insight into actual interest rates in the financial system, and Cardoso called it an improvement on the old arrangement.
Managing the Surprise
The governor said the bank thought carefully about how to communicate the decision. At his post-meeting press briefing, he spent more time than usual explaining the economic conditions behind it.
That approach, he said, helped market participants understand the reasoning after the initial shock. He stressed that credibility is central to effective monetary policy and is built through consistent action over time.
