The Central Bank of Nigeria (CBN) is scaling its effort to tame inflation, one of the most pressing challenges confronting economic policymakers and the country at large, with a shift to an inflation-targeting framework. This move is targeted at alleviating economic hardship, restoring purchasing power, and improving Price Stability as growing inflation, which reached 34.8% in December 2024, affects individuals and businesses on a daily basis. It also represents a shift from earlier approaches that frequently struck a balance between several goals, such as Economic Growth and exchange rate stability, towards a more narrow focus on controlling inflation.
Speaking at the 2025 Monetary Policy Forum, Mr. Olayemi Cardoso, the governor of the CBN, stated that strong policies are needed to manage disinflation in the face of ongoing economic disruptions. The CBN governor underlined that the bank’s goal is to maintain price stability by implementing tight monetary policies. Measurable advancements have resulted from these measures, including the foreign exchange (FX) market’s relative stability, the reduction of exchange rate differences, and the growth of external reserves to more than $40 billion by December 2024. Currently, the apex bank is exploring a shift from an exchange rate-targeting framework to an inflation-targeting strategy.
Sustained focus on price stability and policy credibility.
Adoption of an inflation-targeting framework demonstrates the bank’s dedication to a monetary policy system that is more accountable and transparent. With this structure, the CBN would more effectively inform the public of its actions and set a clear Inflation objective, probably within a given range. It is anticipated that this strategy will strengthen the central bank’s credibility, stabilize inflation expectations, and promote economic stability. Close observation and iterative evaluations will be essential as this new policy orientation develops to guarantee that the intended results are realized.
While outlining the several steps and actions implemented so far to reduce inflation and stabilize the economy, the CBN governor noted that the apex bank would continue its disciplined approach to monetary policy. The CBN is dedicated to reviving trust, bolstering policy credibility, and remaining focused on its primary mission of price stability as it transitions from unconventional to conventional monetary policy, he said. However, maintaining macroeconomic stability calls for proactive monetary policy and vigilant attention.
Previous measures implemented to control inflation.
Prior to this, the CBN has been actively implementing several policies and initiatives to tame inflation with differing degrees of effectiveness. One of such is the Monetary Policy Rates (MPR) tightening. The benchmark interest rate, the MPR, has been regularly modified by the CBN to affect lending and borrowing in the economy. CBN lowers the money supply and reduces expenditure as Inflationary Pressures build by raising the MPR, which makes borrowing more costly. To control excess liquidity and stabilize prices, the CBN, for instance, increased the MPR to 22.75% in 2024 in reaction to growing inflation.
Another notable measure implemented is the Cash Reserve Ratio (CRR), which requires commercial banks to retain a specific proportion of their deposits with the CBN. By raising the CRR, the CBN intends to regulate the amount of money in the economy, which essentially limits the amount of money banks can lend to the general population. In the past, this instrument was regularly modified, and the CRR for banks occasionally rose to 45%, indicating the CBN’s tough stance against inflation.
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Additionally, the CBN’s inflation control approach has so far relied heavily on foreign exchange management. In order to keep the Naira stable and stop import inflation, the CBN has, in the previous year, intervened in the foreign exchange market. The bank has also employed the Open Market Operations (OMO), which entail the purchase and sale of government assets on the open market, to control liquidity. Through the sale of securities, the CBN absorbs surplus liquidity from the banking system to lower inflationary pressures. When inflation is under control, on the other hand, purchasing securities would stimulate growth by bringing liquidity into the economy.