CBN Unveils New Inflation Targeting Framework to Tackle Economic Challenges
The Central Bank of Nigeria (CBN) has initiated a new phase in combating inflation, implementing an inflation targeting framework designed to stabilize prices and strengthen the purchasing power of Nigerians. This framework, adopted by several African central banks, aims to enhance disposable income, stimulate demand, and encourage production. By shifting from the previous exchange rate targeting framework, the CBN plans to improve economic conditions by controlling inflation and addressing its negative impact on households and businesses.
The CBN recently held the Monetary Policy Forum 2025, gathering key fiscal authorities, private sector representatives, and experts to discuss disinflation strategies. Governor Olayemi Cardoso emphasized the importance of a disciplined monetary policy to stabilize inflation. He highlighted the achievements made, such as the rise in external reserves to over $40 billion, and reiterated the need for collaboration between fiscal and monetary authorities to manage persistent economic shocks. The forum also aimed to enhance communication and foster partnerships to better address inflation challenges.
The CBN continues its efforts to build a resilient banking sector, introducing new minimum capital requirements for banks set for March 2026. This is part of broader efforts to position Nigeria’s banking industry for future economic growth. Additionally, the CBN launched the Nigeria Foreign Exchange Code, promoting transparency and fairness in the FX market. Financial inclusion initiatives, such as the Women Entrepreneurs Finance (We-FI) program, also aim to bridge gender gaps and expand access to financial services.
Despite the CBN’s efforts, inflation remains a significant concern. The National Bureau of Statistics reported that inflation increased to 34.8% in December 2024. However, experts predict a reduction to 32% by the end of the first quarter of 2025. The CBN’s shift from an exchange rate targeting framework to inflation targeting is seen as a proactive measure to address inflation more effectively. By controlling money supply growth, the CBN aims to achieve price stability, despite global challenges such as the Russia-Ukraine war and oil price fluctuations.
The resilience of Nigeria’s economy continues to attract both domestic and foreign investors. The CBN’s policy measures, including rising foreign reserves and a stable exchange rate, have bolstered investor confidence. Economic growth has remained positive, with GDP growth at 3.46% in the third quarter of 2024. The financial sector remains robust, with sound indicators like capital adequacy ratios and increased credit flow to key sectors. Despite inflationary pressures, Nigeria’s strong financial system and improved foreign exchange position contribute to the economy’s attractiveness to investors.
Source: Business day