*Says Past N10.93 Trillion Interventions Created Long-Term Distortions, Monetary Policy Alone Cannot Stabilize Economy
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Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, has warned that excess liquidity and the 2027 election cycle could threaten Nigeria’s hard-won economic stability, urging careful management to protect reforms that have strengthened the economy.
Speaking at the National Economic Council (NEC) Conference 2026 at the Presidential Villa, themed: “Delivering Inclusive Growth and Sustainable National Development: The Renewed Hope National Development Plan,” Cardoso addressed the “Fiscal and Monetary Outlook 2026–2030: Priorities and Imperatives” panel.
Recalling the challenges he inherited, Cardoso said: “The cost of loose monetary policy accessibility, the cost of having to soak up all that liquidity was a problem. Next slide and persistent inflation. Inflation has served the 34.6% dysfunctional FX market. You all remember, there’s a huge backlog of over $7 billion and that the parallel market premium exceeded 16% loss of investor confidence. Everybody took flights, nobody went to hold Naira, and it was a very desperate situation. Then, of course, there was direct intervention by the Central Bank, which reached an unprecedented level of 10.93 trillion Naira, which honestly was a huge problem.”
He noted that these interventions “provided short-term support, which many people would argue, but created long-term mandatory distortions, excess liquidity and increased cost of liquidity management.”
Cardoso outlined the three-pillar response that restored stability. First, “a decisive monetary policy on V set NPR increased by a very aggressive 875 basis points to decisively tackle inflation. And of course, we move back to what we call orthodox monetary policy. We phase out all quasi-fiscal development finance interventions to focus squarely on price stability, because without that, you have no growth, you have no investment, you have no growth.”
Second, he stressed the importance of transparency and market-driven reforms: “Engineering a market-driven ethics regime, which we’ve been talking about for a long time, unification and price discovery, clearing the FX backlog and institutionalized transparency, which, to my mind, is a very, very key ingredient of managing the FX market.”
Third, Cardoso highlighted fiscal coordination: “Enhanced fiscal coordination, adhering to statutory limits of deficit financing, good ways and means advances to the government, and we had to have a sharp decline in that, from 2.65% in 2023 to 0.69% in 2024.”
The results, he said, are evident across key economic indicators: “Sustained GDP growth of 3.98%, strong current accounts, for a very long time we haven’t had that $3.42 billion surplus recorded in the third quarter of 2020, by a significant improvement, significant maturation, inflation at 15.15%, banking sector soundness, and growing external reserves of $49 billion as of February 5, 2026.”
He recalled the remarkable improvement in external reserves: “When we took over, the net results figure was about $3 billion, and at the end of last year, it had gone up significantly. By February 2026, it was $49 billion. The premium between the official and parallel market risk has collapsed to under 2%. People can now travel and use their Naira cards without worrying about foreign exchange.
The Naira is now competitive and predictable.”
Looking ahead, Cardoso said the 2026–2030 roadmap prioritises “anchoring, disinflation, FX market normalization and financial system resilience. In common language, this means we will stay the course and continue what we have done… price stability through transition to inflation targeting, strengthening external reserves, safeguarding the value of the Naira, and ongoing banking sector recapitalisation. This will support financing for a $1 trillion economy.”
He warned that key risks remain, particularly around elections: “Danger ahead, the risk we must manage. Liquidity overhang remains in the system. The election cycle, typically, a lot of money gets pumped into the system. This has to be watched to ensure it does not destabilize the very bold reforms that have brought about stability to the economy, amid global trade tensions.”
Cardoso emphasised that monetary policy alone has limits: “Monetary policy is a necessary but insufficient tool. No central bank can sustainably deliver low and stable inflation alone where structural drivers such as food supply shocks, high energy and logistics costs, and infrastructure challenges persist. Liquidity management has boundaries. Transmission is imperfect when markets are thin and informality is high. Sustained gains require fiscal discipline, supply-side reforms and institutional coordination.”
He also highlighted the role of sub-national governments: “Over 50% of revenue is controlled at the sub-national level. These governments can significantly impact macroeconomic outcomes and microeconomic stability.”
By 2030, Cardoso said, targets include “single-digit inflation, growing foreign exchange reserves powered by non-oil exports, FDI and remittances, a globally competitive financial system, stable markets with effective exchange rates, deeper local currency financing, and a financially inclusive economy.”
Concluding on an optimistic but cautious note, he said: “The future is looking bright despite challenges. We are committed to the reform agenda, but we are not out of the woods. We need to remain focused, continue our current policies, and ensure all potential headwinds are properly anticipated and managed. From the Central Bank, I assure you we will stay focused on strategic sequencing, improve fiscal and monetary coordination, and strengthen the economic environment to unlock Nigeria’s potential.”
Meanwhile, the Nigerian Naira strengthened against the US Dollar at the official market, closing at N1,354.25 per dollar on Monday.
This represents a gain of N11.93, or approximately 0.8%, compared to Friday’s rate of N1,366.19 per dollar, according to data from the Central Bank of Nigeria (CBN).
The appreciation underscores the ongoing stability in the foreign exchange market, largely attributed to recent reforms implemented by the CBN.
The Naira has been on a gradual upward trajectory in recent weeks, breaking below the psychologically significant N1,400 mark earlier this month and continuing to build on those gains.
On February 2, the currency traded at around N1,384.5 per dollar, marking a steady improvement from January’s closing rates, which hovered above N1,400.
The parallel market rate stood at approximately N1,454 per dollar last week, reflecting a premium of about 6.4% over the official rate, a figure that has narrowed significantly from highs of over 60% before the reforms took hold.
Cardoso’s warning comes as the country prepares for the 2027 general elections, traditionally a period of heightened government spending that has historically put pressure on the currency and monetary stability.
The CBN Governor’s concern about excess liquidity and election spending threatening economic gains suggests that despite the naira’s recent appreciation, sustaining these improvements will require fiscal discipline from all levels of government.
The CBN Governor emphasized that while the central bank has implemented reforms that have contributed to naira stability, addressing Nigeria’s broader economic challenges requires coordinated action beyond monetary policy.
Food supply shocks, high energy costs, infrastructure deficits, and global trade tensions remain significant headwinds that monetary policy tools alone cannot address.
Cardoso’s emphasis on the role of state and local governments highlights the importance of coordinated fiscal policy across all levels of government in maintaining macroeconomic stability.
Poor spending decisions, large deficits, or inefficient investment at the subnational level can undermine national monetary policy efforts and contribute to inflation and liquidity challenges.
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