Cardoso’s Orthodox Monetary Advocacy as Bedrock for Virile Economy

James Emejo writes that the adherence to orthodox monetary policy by the Central Bank of Nigeria has had salutary implications for the economy.

Since the CBN Governor, Mr. Olayemi Cardoso assumed office in 2023, he has made orthodox monetary policy implementation a guiding principle on which other initiatives rested upon.

Cardoso had emphasised the need to deviate from the un-orthodox monetary policy regime which he inherited from his predecessor, a practice he largely blamed for the country’s economic tribulations at the time, particularly the high inflationary conditions that threatened price stability – a key mandate of the central bank.

Cardoso, during his maiden media engagement with Arise Television revealed that loans and advances in the economy stood at about N40 trillion of which CBN interventions accounted for about 25 per cent.

According to him, such liquidity injections were responsible for the distortions including inflation in the economy as the interventions were not properly managed.

Highlighting the future of the apex bank under his watch, he declared that the CBN lacked the capacity for direct interventions, and would rather focus efforts on its primary mandate to control inflation, stabilise prices, and ensure a stable economic environment.

The CBN boss said the bank would rather partner with institutions with the capacity to manage such interventions in a way that they would not mismanage the funds but also get the desired outcomes.

Cardoso had since returned the apex bank to the orthodox monetary principles, a development that had restored confidence in the economy as well as achieved relative stability in the Foreign Exchange (FX) segment.

The orthodox monetary policy refers to conventional methods used by the CBN to manage the economy by controlling the money supply and interest rates, with the primary goal of ensuring price stability, inflation control, and economic growth.

The policy entails the adjustment of the Monetary Policy Rate (MPR), the benchmark interest rate to influence borrowing and spending as well as buying or selling government securities to increase or decrease liquidity in the banking system through the Open Market Operations (OMO), and inflation targeting among others.

The orthodox monetary policy guarantees predictability and transparency, enabling the CBN to communicate its policies clearly to helps businesses and consumers plan for the future.

The policy also helps to boost credibility and confidence by following well-established rules that boosts credibility in financial markets and reduces uncertainty.

It further leverages natural market dynamics rather than direct government intervention, often leading to more efficient allocation of resources as helps maintain price stability, which protects purchasing power and promotes long-term investment.

While orthodox monetary policy engages traditional tools used by central banks to manage the economy.

On the other hand, Unorthodox (Non-Conventional) monetary policy utilises non-traditional tools used when standard tools are no longer effective, especially during crises or when interest rates hit zero, referred commonly as a liquidity trap.

The method adopts Quantitative Easing (QE) where the CBN buys long-term assets to inject liquidity into the economy and charging banks for holding reserves to encourage lending (Negative Interest Rates).

It further uses forward guidance to promising future policy direction to influence expectations as well as targets specific long-term interest rates (Yield curve control).

Another hallmark of the unorthodox monetary policy intervention id the direct cash injections to households as witnessed during the COVID-19 crisis, a development which only served to worsen inflation, as pointed out by Cardoso.

No turning back on orthodox policy choice

Only recently, Cardoso, reaffirmed the central bank’s commitment to restoring credibility in the bank’s operations through orthodox monetary policy, transparency, and policy consistency – promising to sustain key policy reforms undertaken under his watch to address a crisis of confidence which he inherited at his assumption of office in 2023.

Cardoso spoke during a fireside chat at a high-level global forum, hosted by the apex bank in collaboration with J.P. Morgan and Nigerian Exchange Group (NGX), at the NASDAQ MarketSite in NYC, ahead of the recently concluded IMF & World Bank Spring Meetings in Washington D.C.

He said, “We inherited a crisis of confidence, but we chose a different path. We’re not turning back.”

Cardoso spoke alongside Nobel Prize-winning economist Dr. James Robinson, and Professor at the University of Chicago and Director of the Pearson Institute for the Study and Resolution of Global Conflicts, Reverend Richard L. Pearson.

Led by Cardoso, the CBN detailed its 18-month reform agenda, from monetary tightening and FX market transparency to stronger financial governance.

The central bank governor stressed that these reforms are laying the groundwork for long-term macroeconomic stability and signaling a new era of transparency and confidence.

The forum was about facts and the future, engaging critical voices, reviewing progress, and identifying what’s needed to build enduring partnerships and attract long-term capital. At the center of the engagement was a clear goal – reasserting the CBN’s role as a credible, trusted institution, respected globally and committed to excellence at home.

CBN Deputy Governor,  Economic Policy Directorate,

Muhammad Sani Abdullahi, provided macroeconomics update, stating that FX turnover had risen sharply, amid early disinflation signals. He said the country’s external reserves were strengthening, noting that a market-determined exchange rate and a transparent, rules-based policy framework, confidence was gradually being restored in Nigeria’s economy.

The CBN presentation highlighted government’s focus on growing non-oil revenues; driven largely by implementing tax reforms and the National Single Window Revenue transformation through the implementation of tax reforms.

The apex bank also showcased the pursuit of bold tax reforms that will prioritise non-oil revenue sources which is crucial to mitigating susceptibility trade shocks.

Growing confidence in economy

In January, Cardoso declared that despite Naira’s volatility in recent years, the international community believed the currency was now reflective of its real rate and currently more competitive, noting that recent reforms in the nation’s Foreign Exchange (FX) segment, particular the adoption of orthodox method of operations have continued to attract foreign investors into the economy, vowing that the monetary authority will do everything possible to ensure that current inflows continue.

Speaking at the 2025 Monetary Policy Forum with the theme, “Managing the Disinflation Process” in Abuja, the CBN governor noted that foreign investors would always be willing to invest in an environment where returns are attractive, and where monetary policy can be more transparent and predictable.

The CBN governor further stressed that cautious optimism was emerging globally around potential improvements in capital flows to emerging markets, as advanced economies transition toward monetary easing.

Cardoso however, noted that Nigeria’s ability to attract these inflows will depend on investor confidence in our domestic reforms, particularly those ensuring macroeconomic stability and delivering positive real returns on investment, pointing out that without the decisive policy interventions undertaken by the bank to reign in rising prices, inflation could have reached 42.81 per cent by December 2024.

Unorthodox monetary policies harmful to price stability, growth

The CBN governor noted that the liquidity injections associated with unorthodox monetary policies, particularly since the COVID-19 pandemic, had created significant overhang, adding that while these measures were intended to cushion immediate shocks, they did not translate into commensurate productivity growth, fueling inflationary pressures and heightened foreign exchange volatility.

He said excess naira liquidity in the system had amplified demand-driven inflation, further exacerbated by supply-side constraints stemming from structural deficits.

Nonetheless, he said the country had turned a corner, pointing out that disinflation was within reach.

He said, “However, we must remain committed to bold, coordinated policy measures to consolidate our progress”, adding that for inflation to be defeated, it required serious collaboration between the fiscal and monetary side.

The central bank governor said these dynamics underscored the importance of a disciplined and coordinated approach to monetary policy to restore stability.

However, the Monetary Policy Committee (MPC) had in response initiated a tightening cycle using orthodox approaches.

Throughout 2024, the bank implemented several bold policy measures across six MPC meetings, including raising the Monetary Policy Rate (MPR) by a cumulative 875 basis points to 27.50 percent, increasing the Cash Reserve Ratio (CRR) of Other Depository Corporations (ODCs) by 1,750 basis points to 50 percent, and adjusting the asymmetric corridor around the MPR.

Cardoso stressed that despite global and domestic headwinds, the CBN’s commitment to price and monetary stability had yielded measurable progress.

According to him, inflation erodes purchasing power, discourages investment, and exacerbates inequality, adding that managing the disinflation process requires a careful balance of policies that mitigate short-term costs while anchoring long-term stability.

Improved ratings approvals

Furthermore, and in credit to Cardoso, international ratings agencies have issued positive ratings on Nigeria since the return of monetary policy to orthodox regime.

Orthodox approaches are seen as fostering long-term economic health, minimising boom-bust cycles and is viewed as a sign of responsible economic management, which is crucial for a strong sovereign credit rating.

This is because stable policy attracts foreign investment and encourages financial market development, both viewed favourably by rating agencies.

Cardoso stressed that the country’s approach had remained firmly rooted in orthodox monetary policies, a stance that was consistently communicated to market participants.

Specifically, the CBN governor said under his watch, the apex bank had done a great deal in restoring credibility back to the central bank and regaining the trust in the institution, a development that had attracted positive ratings from global rating agencies.

He said, “We are not there yet. It is a continuum. But without the success of rebuilding back the trust, all the other things that we want to credit ourselves with having done or wanting to do will not happen.”

The country experienced positive ratings by international agencies when it adopted orthodox monetary policy because of its transparency, investor confidence, and economic stability, while unorthodox approaches attracted ratings downgrades, capital flight, and credibility loss.

CBN Under Godwin Emefiele (2014–2023), the CBN adopted increasingly unorthodox monetary policies, including multiple exchange rates -Official vs parallel market rates, creating arbitrage opportunities and uncertainty.

The era was signposted by heavy intervention in forex markets, trying to defend the naira artificially and use of development finance tools – specifically direct lending to sectors like agriculture and manufacturing, bypassing commercial banks.

It also included monetary financing of the budget through printing money to fund deficits, raising concerns of inflation and fiscal dominance.

This practice impacted on Nigeria’s credit standing as the policies undermined investor confidence and drew criticism from institutions like the IMF and World Bank.

The era led to foreign capital flight and dwindling FX reserves, and rising inflation, partly due to exchange rate distortions and excess liquidity.

Consequently, ratings agencies like Moody’s and Fitch downgraded Nigeria’s outlook or rating, citing weak monetary policy credibility; and erosion of central bank independence, including limited transparency.

On the contrary, between 2023–2024, following Emefiele’s removal, the CBN under Cardoso has returned to orthodoxy monetary policy regime with salutary impact on economy.

The new regime signified unified exchange rate regime, tighter monetary policy to combat inflation through significant interest rate hikes, including efforts to rebuild CBN independence.

Expectedly, the ratings agencies responded more positively to these reforms as investor sentiment improved modestly while the country has witnessed increased engagement from international financial institutions.