Newly appointed CBN Governor, Cardoso faces tough test amid FX crisis, rising rates

Yemi Cardoso, newly appointed governor of the Central Bank of Nigeria, will have to deal with the nation’s lack of foreign currency and the double-digit interest rate that harms enterprises. According to SAMI OLATUNJI, he also has the impossible challenge of controlling the inflation rate’s rapid rise.

The Central Bank of Nigeria’s selection of Yemi Cardoso as its new governor sparked enthusiasm among market participants. Cardoso is not only one of them; he has unquestionable ability to oversee the nation’s monetary policy. If confirmed by the Senate, he will become the 11th governor of the CBN.

Godwin Emefiele, whose abrupt suspension and expulsion still raises legal concerns, will be succeeded by him. The debate over whether economists or bankers make the best central bank governors may flare up again in light of the 66-year-old banker’s candidacy. The former chairman of Citibank Nigeria is a banker by the name of Cardoso. Some of Nigeria’s most well-known CBN governors, nevertheless, are economists.

The foreign exchange crisis, the double-digit interest rate, slowing the rate of inflation, and outstanding intervention loans are the top concerns for Nigeria’s new CBN governor.

Issues facing Emefiele

With last month’s inflation figures reaching an 18-year high, the CBN has had little success in six years of trying to reduce inflation. Emefiele proposed that the reason for the high prices was due to opportunistic intermediaries. During his tenure as governor, the CBN financed agricultural programs, fixed exchange rates, and increased loans to the federal government all made headlines.

The independence of the bank was called into doubt by a number of the actions Emefiele implemented while governor that appeared to have the approval of the late president Muhammadu Buhari. A brief attempt by Emefiele to run for president when he was the governor of the Central Bank of Nigeria (CBN) received criticism as well. About his replacement, Cardoso, observers are as concerned.

Longtime colleague of Tinubu’s is the new CBN governor. In 1999, he was named the commissioner for budget and economic planning for Lagos State, but due to his winning the Michael Romer Memorial Scholarship, he did not serve for the full term. If Cardoso had declined the scholarship, according to some political analysts, he might have been chosen to replace Senator Bucknor Akerele as deputy governor of Lagos. Femi Pedro took the position of vice governor instead.

Cardoso’s impressive career with Citibank and Citizens International Bank, as well as his academic and professional achievements, may raise some hope that he might make a good governor of the Central Bank of Nigeria (CBN), notwithstanding concerns about partisanship. But he might have to fight off accusations that his nomination is a continuation of Tinubu’s emerging trend of include his former supporters in strategic teams, similar to what Wale Edun had to do when he was named finance minister.

Additionally, Tinubu gave his approval for the appointment of four new deputy governors of the top bank, each of whom will hold office for a comparable initial term of five years, subject to Senate confirmation.

The candidates are Philip Ikeazor, Bala Bello, Emem Usoro, and Muhammad Abdullahi-Dattijo. Mrs. Usoro, on the other hand, has over 20 years of experience in banking, spanning retail, corporate, commercial, and public sector banking, and she has worked in every region of the nation. In addition to leading the Strategic Business Group, she served as group general manager. She has received numerous honors from the yearly UBA CEO Awards and served as the regional head of Lagos Bank 2. Both Lagos Business School and Harvard Business School have graduated her.

Abdullahi-Dattijo is a skilled development economist with over twenty years of expertise in public finance, policy creation, and project implementation. He was the previous APC contender for senator from Kaduna Central in the 2023 elections. He has held a number of prominent posts, including that of a policy advisor at the New York office of UN Secretary-General Ban Ki-Moon.

The financial services sector has employed Ikeazor for more than 30 years. He has served on several boards, most notably as CEO of Keystone Bank Limited, Ecobank Kenya Limited, Executive Director of Union Bank Nigeria, Director of Union Bank UK PLC, and Director of the Orient Bank Uganda. A member of the Consultative Group on International Agricultural Research, which is run by the World Bank, he also sat on the board of directors of the International Crop Research Institute for the Semi-Arid Tropics in India. He graduated with a BSc in Economics from the University of Buckingham in the United Kingdom. He also completed the Wharton-CEIBS-IESE Global CEO Programme and executive education at the Harvard Business School and Wharton School of Business.

From Taraba State, Bello is a prominent figure in the field. Banks, stock markets, and pension fund management have all been a part of his professional career. In addition to being a well-known accountant, he is a highly respected public person. The Nigerian Export-Import Bank’s Executive Director of Corporate Services, Bello, was chosen in April 2017 by the recently-past President Muhammadu Buhari.

Forex crisis

There is no way to overstate the significance of the exchange rate as a key macroeconomic factor. Producing and exporting products and services is how nations make foreign exchange. Strength of a nation’s currency is influenced by the amount of foreign exchange and external reserves in that nation.

The CBN has evolved and put into practice many policy alternatives to address the nation’s ongoing FX difficulty, which occasionally turns into a crisis scenario, throughout the years.

Because of a severe currency shortage in 2016, the naira fell to a record low of 530 to the dollar. The situation, according to CBN, was brought about by individuals sheltering unlawful funds, those scrambling to get illicit earnings out of the country at any cost, and speculators.

Multilateral organizations have protested the CBN’s decision to maintain different currency rates over the years.

Godwin Emefiele, the suspended CBN Governor, stated that the goals of the exchange rate policies implemented under his watch were to “preserve the value of the domestic currency and maintain a favorable external reserves position.” According to a press report by Emefiele, developing nations like Nigeria, where there is a large demand for imports, must implement an exchange rate system that “safeguards capital outflow and ring-fences the external reserves.”

Mr. Folashodun Shonubi, the temporary governor of the Central Bank of Nigeria, established a free-floating, uniform exchange rate. He did away with all segmentations and combined the Importers’ and Exporters’ windows into one.

In a statement endorsing the new exchange rate system, the World Bank stated that it was essential to reestablish macroeconomic stability. But as a result of the new FX policy, the naira fell to an all-time low of 945/$1 on the black market since there was an enormous demand for dollars compared to supply. The “unofficial diaspora remittances” were cited by CBN as the cause of the development rather than the demand and supply factors that govern markets.

According to Shonubi, a large portion of remittances from the diaspora ended up on the black market or parallel economy because they weren’t formally recognized.

The FX crisis is still a problem for the nation, despite all the apex bank’s efforts and regulations.

Nigeria was recently downgraded from frontier to unclassified market category by the London Stock Exchange Group subsidiary FTSE Russell. Due to the country’s foreign exchange crisis, the status was downgraded to unclassified market. According to FTSE Russell, it will keep an eye on Nigeria, and once the country’s foreign exchange issues have been resolved for a while, it will be evaluated as a new market in accordance with the FTSE Equity Country Classification Process.

The new governor of the CBN and his appointees will presumably need to handle this situation.

Double-digit

The CBN began tightening its monetary policy in May 2022, increasing its benchmark interest rate from 11.5 to 18.75 percent in July of this year. This was explained by the bank, which stated that the increase in interest rates was necessary due to the rising rate of headline inflation.

In order to contain inflation, which had been on the increase, the International Monetary Fund has recommended the CBN to keep its monetary policy-tightening stance.

The ongoing tightening has, however, been resisted by several interests.

The Nigeria Employers Consultative Association’s Director General, Mr. Wale Oyerinde, earlier said that the higher Monetary Policy Rate means higher borrowing.

Furthermore, the increased MPR indicates higher borrowing rates, which would significantly impact businesses and manufacturers who rely on borrowing for survival, he continued. Increased rates would slow down productive activity, which, if left unchecked, might result in another type of economic mess.

Additionally, according to President Bola Tinubu, interest rates must be lowered to spur consumer spending and investment that will support an expansion of the economy.

Recent data collected from the National Bureau of Statistics show that, despite the ongoing tightening, inflation increased to 25.80% in August from 24.08% in July.

Due to this, advocates have suggested alternatives to tightening the MPR as a means of regulating inflation.

Amounts owed

As a form of intervention, the CBN has granted a number of loans to make money available to various economic sectors, particularly the agricultural sector.

The Anchor Borrowers’ Program is a prime example of an intervention program.

Even though the initiative has seen some success, there was a snag when some of the beneficiaries were unable to pay back the loan when it was due.

Also claimed is the diversion of funds and agriculture inputs by some of the authorities who were charged with their distribution.

It was discovered that, since the ABP’s inception, the CBN has paid out over N1.1 trillion to its recipients, but only a little more than N546 billion of that amount has been reimbursed.

President Bola Tinubu was forced to issue a presidential order for the loan’s recovery due to the program’s current controversy-filled state.

It is anticipated that more than N577 billion will be recovered from defaulting farmers and authorities who diverted the funds thanks to the President’s decree.

With the aid of the security forces and other stakeholders, the incoming CBN governor is anticipated to ensure that the loans are repaid.