BY NGOZI ONYEAKUSI

The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso has defended the bank’s monetary policy decisions, saying improved external reserves, declining inflation and sustained economic growth provided the buffers needed to correct imbalances in the monetary policy transmission mechanism.

The Governor, speaking during a discussion on ‘How Central Bank Decide, Committee Decision-Makimg and Communication in an era of Uncertainty ‘ said the CBN’s actions were supported by improvements in macroeconomic conditions and better coordination between fiscal and monetary authorities.

He explained that the CBN had introduced reforms to strengthen policy coordination, including a memorandum of understanding between fiscal and monetary authorities, as well as an overnight financing rate to provide greater clarity on prevailing interest rates.

According to him, these measures helped establish the conditions for addressing weaknesses in the transmission of monetary policy.
He said Nigeria’s external reserves had reached their highest level in 18 years, while inflation was consistently declining despite rising inflationary pressures in several other countries.
The Governor added that economic growth had remained at a reasonable pace, giving policymakers greater confidence to address existing imbalances.

He said effective communication was also crucial in helping the markets and the public understand the rationale behind the bank’s decisions.

The Governor explained that, following Monetary Policy Committee (MPC) meetings, the CBN engaged with the press to explain the economic conditions that informed its decisions, the challenges it had confronted and the progress made.

He noted that although the decision initially took the market by surprise, participants eventually understood its rationale after examining the underlying economic conditions and the need to correct the faulty transmission mechanism.

The Governor stressed that credibility was essential to the successful implementation of monetary policy, noting that markets must have confidence in a central bank’s decisions based on its consistent record of sound policy choices.

On the management of MPC deliberations, he said the committee’s chair had a critical responsibility to steer discussions towards the issues requiring urgent attention and prevent members from spending excessive time on areas of disagreement.

He explained that identifying areas of consensus before debating contentious issues could make deliberations more productive and improve the quality of decisions.

According to him, during a recent MPC meeting, members agreed that the monetary policy transmission mechanism was not functioning effectively, allowing the committee to focus its discussions on how to address the problem.

The Governor also highlighted the importance of considering Nigeria’s unique inflationary experience when making policy decisions, noting that foreign exchange reforms and the removal of fuel subsidies occurred at different points in the inflation cycle compared with developments in other countries.

He cautioned against allowing policy decisions in other economies, particularly the United States, to dictate Nigeria’s monetary policy direction without sufficient consideration of domestic conditions.
On transparency, the Governor said the publication of individual MPC members’ statements had strengthened accountability and helped policymakers better understand different perspectives within the committee.
He added that external members were involved early in policy discussions and given access to relevant information, while regular engagements and retreats helped them understand the issues confronting the economy.

The Governor said the CBN also encouraged independent-minded members to contribute different perspectives, reducing the risk of groupthink and strengthening the quality of deliberations.

He noted that restoring confidence in the economy following the currency crisis required decisions that were fundamental, credible and capable of delivering lasting results.

The discussion also highlighted the importance of central bank staff in the monetary policy process, with participants noting that technical experts play a critical role in preparing forecasts, analysing economic data and conducting scenario assessments to support committee decisions.