In order to bring the official exchange rate closer to market realities, the apex bank under his leadership bravely floated the Naira in the foreign exchange market, according to Mr. Olayemi Cardoso, Governor of the Central Bank of Nigeria (CBN).

Prior to Cardoso, a trio of CBN Governors had experimented with the option of floating when they encountered persistent pressure on exchange rates and excess demand for foreign currency. They all gave up on the option out of concern for the potential for sharp value declines and ripple effects throughout the macroeconomic system.

Speaking for the first time about his experience in the saddle thus far and emphasising the volatility in the financial market since taking office a year ago, Cardoso clarified that the floatation policy was intended to address the discrepancy between the official and parallel rates, which fostered speculation and arbitrage and undermined market confidence.

During his speech on the topic of “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation” to the members of the Harvard Club of Nigeria in Lagos over the weekend, Cardoso recalled that he realised as soon as he took office that the actions he and his team took had to be based on the credibility of the Central Bank of Nigeria (CBN).

He said: “No policy, no matter how well-meaning, can succeed without credibility. To bring the official exchange rate closer to market reality, the naira had to be floated, a move that drew harsh criticism from the public.The discrepancy between the parallel and official rates had fostered speculation and arbitrage, undermining market confidence.

One gains credibility via perseverance. The CBN’s resolve to transparency and good monetary policy was demonstrated to market players by the decision to close this gap, he continued, adding that less speculative trading was occurring and that stability was gradually returning to the currency markets.

He admitted that the CBN had not yet reached its goal, but that controlling inflation remained the Bank’s primary objective.

But he emphasised that the National Bureau of Statistics (NBS) decreases that were announced in July and August of 2024 demonstrated that the CBN was headed in the right direction.

He went on to say, “We made a bold decision to raise the Monetary Policy Rate (MPR) to 27.25%.” Even though higher interest rates hurt borrowers, they are essential to reduce the amount of money in circulation and manage inflation. In these kinds of situations, leadership is about making difficult decisions that ensure long-term stability over temporary comfort.