Monetary Reforms Spur Inflation Drop, Forex Stability, Says Central Bank

The Central Bank of Nigeria (CBN) declared yesterday that the economy is firmly on the path to recovery, crediting the sharp drop in inflation, renewed exchange rate stability, and the rebound in external reserves to its return to orthodox monetary policies, as well as the coordinated reforms undertaken over the past two years.

Deputy governor, Corporate Services, CBN, Emem Usoro, who stated this at a seminar for financial journalists, said the bank’s reform agenda, which included strengthened corporate governance, tighter compliance frameworks and the ongoing bank recapitalisation programme, had been instrumental in restoring confidence and reversing several macroeconomic distortions that once threatened the stability of the financial system.

Usoro explained that, when the current CBN Management assumed office, the macroeconomic environment was under severe strain, with high inflation, volatile exchange rates, dwindling external reserves, and a crippling foreign exchange backlog that forced the economy into heavy reliance on Ways and Means financing. She said the bank’s decision to return to disciplined, market-driven policy tools was essential to halting the drift.

“When this management team assumed office, the macroeconomic environment was challenging, with high inflation, unstable Naira, low reserves and a significant foreign exchange backlog… The bank implemented well-sequenced and compliance-driven measures, including orthodox monetary policies and strengthened corporate governance.

“These actions align with the federal government’s reform agenda and have helped restore stability and key macroeconomic indicators, “ Usoro said.

According to her, inflation has now declined to 16.05 per cent, while the exchange rate has stabilised below N1, 005 with minimal volatility. She added that the country’s external reserves have climbed above $46 billion, providing more than 10 months of import cover, a development she described as a clear sign of policy traction after years of instability.

The deputy governor emphasised that effective communication and public engagement remain crucial to sustaining the gains achieved so far. She urged the media to continue amplifying the benefits and progress of ongoing reforms, saying, and Public understanding is central to policy success.

While acknowledging the significant progress made, Usoro warned that more work lies ahead to improve macroeconomic fundamentals and raise the standard of living for Nigerians.

She called for more substantial alignment between fiscal and monetary authorities to ensure policy coherence and deepen financial system resilience, especially as technological innovation and digital finance continue to reshape the landscape.

She emphasised that, while progress has been made, further work is needed to enhance macroeconomic fundamentals and improve the standard of living for Nigerians, adding that aligning fiscal and monetary policies is crucial for strengthening the financial system and ensuring resilience.

Usoro thanked participants at the seminar and expressed optimism that the engagements would produce actionable recommendations capable of strengthening policy collaboration and enhancing economic outcomes for the country.

In his presentation on ‘The Strategic Framework And Specific Policy Actions Required To Align Nigeria’s Monetary And Fiscal Policies To Achieve A Robust, Shock-Resilient, And Efficient Financial System, ‘ development economist; Lead Consultant, ECOWAS Commission and president, Institute of Professional Economists and Policy Management, Prof Ken Ife noted that, “A robust financial system is one that is resilient to domestic and external shocks, efficiently intermediates resources, protects consumer deposits, maintains market integrity, and provides the necessary capital for economic growth.”

He further stated that, “the primary and major threat to the stability of Nigeria’s financial system and price stability is fiscal dominance. This injects massive, non-sterilised liquidity into the economy, directly leading to high inflation and making the CBN the primary cause of the instability it is mandated to control.”

On his part, assistant director of the Monetary Policy Department of the CBN, Dr Afangideh Udoma Johnson, in his presentation titled ‘Aligning Monetary Fiscal Policy Coordination To Strengthen Financial System’ noted that, “when these two policy instruments work at cross-purposes, the outcome is often instability, rising inflation, exchange-rate volatility. Conversely, when fiscal prudence and disciplined monetary management move in harmony, they create a strong foundation for a robust financial system.

“Large fiscal deficits financed through central bank lending contribute to inflationary pressures and undermine price stability objectives. Effective coordination between fiscal and monetary authorities is therefore essential for achieving macroeconomic stability. “