ABUJA – Since taking office, Central Bank of Nigeria (CBN) Governor Yemi Cardoso has made tackling inflation a cornerstone of his economic policy, primarily through aggressive adjustments to the Monetary Policy Rate (MPR), the country’s benchmark interest rate.
Under Cardoso’s leadership, the CBN has consistently raised the MPR, which influences borrowing costs across the Nigerian economy. As of March 2025, the MPR stands at 27.25%, reflecting a series of increases implemented in recent months. These hikes signal a determined effort to curb inflationary pressures by making borrowing more expensive, with the aim of reducing consumer spending and business investment, thereby cooling down demand and slowing price increases. As of July 2024, the MPR reached 26.75%, representing the fourth increase within a seven-month period.
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The rationale behind this approach aligns with standard economic principles: higher borrowing costs discourage spending and investment, putting downward pressure on prices. Furthermore, increased interest rates can attract foreign investment, potentially strengthening the Naira and lowering import costs, which can also help to ease inflation.
However, this strategy presents a delicate balancing act. While effective in controlling inflation, higher interest rates can also stifle economic growth by making it more difficult for businesses to invest and expand, potentially leading to job losses and increased debt burdens.
The CBN, under Cardoso, is attempting to navigate this trade-off by closely monitoring the impact of its interest rate decisions on the broader economy. The MPR increases have been accompanied by measures aimed at supporting economic activity and mitigating the potential negative effects of higher borrowing costs, including efforts to improve access to credit for small and medium-sized enterprises (SMEs) and targeted interventions in key sectors.
The success of Cardoso’s interest rate strategy will depend on various factors, including the underlying causes of inflation in Nigeria, the responsiveness of businesses and consumers to changes in interest rates, and the overall global economic environment. Whether these measures will successfully bring inflation under control without significantly hindering economic growth remains to be seen. The CBN’s commitment to data-driven decision-making and its willingness to adjust its policies as needed will be crucial in achieving its objectives.
