Rewriting Nigeria’s Financial Rules Amid Inflationary Pressures

By Olaotan Fawehinmi

Nigeria’s economic landscape has undergone significant shifts since 2023, with the Central Bank of Nigeria (CBN) playing a pivotal role in managing this transformation. The period from 2023 to 2024 marks a strategic recalibration characterised by bold monetary interventions, regulatory reforms, and a restructuring of the nation’s financial infrastructure.

The CBN’s core mandates remain maintaining price stability, promoting economic growth, and ensuring a sound financial system. Since 2023, the institution has implemented key policy measures, including interest rate adjustments, exchange rate management, and enhanced regulation of the banking sector.

The transition from Godwin Emefiele’s unorthodox economic management to Olayemi Cardoso’s orthodox monetary approach marked a significant shift in policy. Appointed in September 2023, Cardoso focused on restoring price stability through aggressive interest rate hikes and liquidity tightening. The Monetary Policy Rate (MPR), which had remained at 18.75% for much of 2023, was raised sharply to 22.75% in February 2024 and 24.75% in March, an unprecedented 600 basis-point increase in two months. This aggressive move underscored the CBN’s renewed focus on combating inflation, which had reached 33.69% by April 2024.

To reinforce this stance, the CBN raised the Cash Reserve Ratio (CRR) to 45%, among the highest globally, and issued over ₦2 trillion in Open Market Operations (OMO) bills in Q1 2024 to drain excess liquidity.
A new, transparent communication strategy complemented this monetary tightening. MPC meetings became more informative, offering detailed insights into policy reasoning.

Cardoso’s leadership also emphasised collaboration with fiscal authorities through quarterly economic coordination meetings aimed at reducing fiscal deficits and encouraging investment. These efforts aim to address the root causes of inflation, including past expansionary policies, fiscal imbalances, exchange rate volatility, and structural constraints.

Several compounding factors have driven inflationary pressures. First, insecurity in food-producing regions disrupted agricultural supply chains, pushing food inflation to 40.53%. Second, the naira’s depreciation, from ₦460 to ₦1,300 per dollar between May 2023 and April 2024, amplified imported inflation. Third, the removal of fuel subsidies in May 2023 triggered a 50–70% increase in transport costs, further elevating living expenses.

A landmark policy reform was the June 2023 unification of multiple exchange rate windows into a single, market-driven investors and exporters FX window. This eliminated arbitrage opportunities, allowing market forces to exert greater control over price discovery. The naira devalued sharply, reaching ₦1,638/$ by May 2025, while the CBN withdrew from its role as primary FX supplier, allowing authorised dealers to assume that role. Clearing a $7 billion FX backlog was critical to restoring market confidence.

Despite initial volatility, the exchange market began to stabilise by April 2024, with reduced naira fluctuations and a narrowing parallel market premium. Nonetheless, FX market turnover remains low, indicating ongoing supply constraints.

In the banking sector, the CBN launched a major recapitalisation drive. Tier 1 banks must now maintain ₦500 billion in capital, while Tier 2 banks require ₦200 billion. This move aims to bolster sector resilience and global competitiveness.

Fintech regulation also tightened. Enhanced KYC protocols, real-time monitoring, and beneficial ownership disclosure rules were enforced. Cybersecurity became a priority with the introduction of mandatory certifications and the establishment of a dedicated response unit.
Despite progress, challenges remain. While monetary tightening demonstrates a commitment to price stability, concerns persist over economic contraction and reduced credit access. Lending rates rose to 28–35%, squeezing private-sector borrowing and slowing growth. Nigeria’s GDP grew by only 2.31% in Q1 2024, down from 3.46% in Q4 2023, which lags behind the population growth rate of 2.5%.

Critics, including Professor Pat Utomi, argue that current inflation is largely cost-push, driven by structural deficiencies rather than demand. Thus, monetary policy alone cannot resolve Nigeria’s economic problems. Improving security, boosting food production, enhancing infrastructure, and expanding energy access are vital for long-term stability.

The current policy framework has increased transparency, boosted foreign investor confidence, and begun to correct FX market distortions. However, it has also imposed short-term costs. The balance between curbing inflation and stimulating growth remains fragile.

As Governor Cardoso noted in April 2024: “Monetary policy is necessary but not sufficient for Nigeria’s economic transformation.” Coordinated reforms across agriculture, security, energy, and infrastructure are essential. The true test of policy success will be its ability to improve real economic opportunities and quality of life for Nigerians, not just macroeconomic statistics.

While monetary policy has taken centre stage, sustainable development requires an integrated strategy that addresses the root causes of instability. Nigeria’s path forward hinges on maintaining this reform momentum, fostering institutional strength, and ensuring policies serve not only markets but people.