Since assuming office in September 2023, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso has taken aggressive steps to stabilise the economy as his administration has focused on curbing inflation, managing exchange rate volatility, and addressing the influence of Nigeria’s black-market currency traders.
According to Muhammad Jibrin Barde, an economist and politician, Muhammad Jibrin Barde despite these efforts, structural challenges—including excessive government spending and fiscal-monetary misalignment—continue to undermine monetary policy effectiveness.
Barde who is an ex-gubernatorial aspirant in Gombe state, said to combat rising inflation, the CBN has aggressively tightened monetary policy, raising the Monetary Policy Rate (MPR) by a cumulative 875 basis points to 27.5 per cent in 2024.
This strategy according to him aims to reduce excess liquidity in the system, however, inflation remains stubbornly high, reaching 34.8 per cent in December 2024.
He said the persistence of inflation is driven by factors such as rising fuel prices, exchange rate fluctuations, and supply chain disruptions.
Barde in an opinion piece, noted that while the CBN expects inflation to decline gradually in 2025, success will depend on the federal government’s ability to align fiscal policies with monetary tightening.
He said without fiscal discipline, high government spending will continue to fuel inflation, undermining the impact of interest rate hikes.
“Governor Cardoso has taken significant steps to reform Nigeria’s foreign exchange market. The unification of multiple exchange rate windows was a major policy shift designed to eliminate arbitrage opportunities and restore investor confidence.
“This reform led to a 79.4% increase in remittances through International Money Transfer Operators, reaching $4.18 billion in the first three quarters of 2024.
“Additionally, the CBN has been working to clear Nigeria’s $7 billion FX backlog, with at least $2 billion already settled. These efforts have contributed to an increase in external reserves, which exceeded $40 billion—the highest level in nearly three years. However, despite these interventions, the naira remains volatile, fluctuating under speculative pressures largely driven by the activities of currency traders in the parallel market”, he noted.
On the Parallel Market Challenge, Barde noted that the unchecked operations of black-market currency traders remain a significant obstacle to exchange rate stability.
He said unlike most economies, where parallel markets operate on a smaller scale, Nigeria’s black market plays a disproportionately large role in determining exchange rates.
The Economist opined that the problem is exacerbated when the government injected excess naira liquidity into the economy through budgetary allocations.
He said this liquidity often finds its way into the parallel market, increasing demand for dollars and further weakening the naira.
To address this issue, Barde said experts have recommended criminalizing black market FX trading, ending CBN’s FX sales to parallel markets, enhancing FX market transparency: implementing stronger capital controls and boosting non-oil dollar inflows.
While identifying excessive government spending as a barrier to stability, Barde said “another critical challenge undermining monetary policy effectiveness is the lack of fiscal discipline. Despite CBN’s tightening efforts, the Nigerian government continues to engage in excessive spending, which injects excess liquidity into the system and fuels inflation.
“Recently, Monetary Policy Committee (MPC) member Murtala Sabo Sagagi pointed out that unchecked government expenditure directly counteracts the impact of higher interest rates, making it harder for the CBN to control inflation. As long as fiscal spending remains unchecked, monetary policy alone cannot stabilize the economy.”
To ensure long-term stability, he said Nigeria must strengthen fiscal responsibility laws to curb excessive borrowing, impose limits on recurrent government spending while prioritizing capital investments, and enhance revenue collection through tax reforms and diversification of non-oil sectors.
Furthermore, he emphasised that the upcoming rebasing of Nigeria’s Consumer Price Index (CPI) will update the reference year to 2023 and expand the basket of goods and services from 740 to 960 items.
While this will provide a more accurate measure of inflation, Barde said it will not directly alter inflationary trends.
“Governor Cardoso’s monetary policies have demonstrated a clear commitment to tackling inflation and exchange rate volatility through orthodox monetary tools and market transparency initiatives.
“However, key structural challenges—particularly the unchecked influence of parallel market currency traders, excessive government spending, and fiscal-monetary misalignment—continue to undermine policy effectiveness,” Barde added.
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