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Speaking to members of the Harvard Club of Nigeria in Lagos over the weekend on the theme “Leadership in Challenging Times: Restoring Credibility, Building Trust, and Containing Inflation,” Mr. Cardoso emphasized that the CBN's initiative aims to improve transparency and ensure more precise oversight of foreign exchange transactions.
He remarked, “Trust is the currency of central banking. If the public loses faith in the institution, the effectiveness of its policies is compromised. Our choice to implement the Electronic Foreign Exchange Matching System (EFEMS) stems from this understanding.”
“By improving transparency and ensuring more accurate oversight of forex transactions, we convey a strong message that the CBN is committed to fostering fair and efficient markets,” he continued.
As he approaches the one-year mark in his role as CBN Governor, Mr. Cardoso shared with his audience that leadership, particularly at the helm of a central bank, often necessitates making tough and occasionally unpopular choices.
He underscored that the Bank is receptive to feedback and willing to reassess decisions that do not align with its initial goals.
“In light of economic challenges, it is crucial to concentrate on core objectives: restoring the institution's credibility, fostering trust in the financial system, and, most importantly, controlling inflation. These are not merely strategic aims; they are essential for any substantial recovery,” he stated.
Mr. Cardoso reflected on his tenure at the Central Bank of Nigeria (CBN), emphasizing that establishing the institution's credibility was fundamental to the actions taken by him and his team upon his appointment. He stated, "Without credibility, no policy, no matter how well-intentioned, can succeed."
He acknowledged that the decision to float the naira, which faced significant public backlash, was essential to align the official exchange rate with market realities. The existing gap between the official and parallel rates had fostered arbitrage and speculation, undermining market trust.
He further explained, "Credibility is built through consistency. Although closing this gap was challenging in the short term, it communicated to market participants that the CBN was dedicated to transparency and sound monetary policy." He noted that this approach had led to a reduction in speculative trading and a gradual return to stability in the currency markets.
While he recognized that controlling inflation remained the Bank's primary objective, he admitted that the CBN had not yet achieved its target. However, he pointed out that the recent declines reported by the National Bureau of Statistics (NBS) in July and August 2024 indicated that the CBN was progressing positively.
He elaborated, "Our decision to increase the Monetary Policy Rate (MPR) to 27.25% was a decisive action. Although higher interest rates can be burdensome for borrowers, they are essential for reducing excess liquidity and managing inflation. Leadership requires making difficult decisions to ensure long-term stability rather than seeking immediate comfort during challenging times."
In discussing key leadership insights, Cardoso remarked, "Navigating through difficult periods necessitates resisting the urge to pursue too many initiatives. The Central Bank must concentrate on its primary goal of maintaining price stability. It is easy to be sidetracked by various political and economic pressures, but a leader must remain focused on priorities."
Effective communication holds equal significance to having the appropriate policy. Transparent and open dialogue cultivates trust. By sharing the outcomes of the Dutch Auction and providing consistent updates on economic data, we have adhered to the principle of transparency.
Trust is established through the conviction that a central bank will undertake essential measures to maintain economic stability, even if those measures are challenging or politically sensitive, he stated.