Interest Rate JackUp Expected as Cardoso Takes Over Nigeria’s Bearish Economy

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Nigeria’s new Central Bank Governor, Olayemi Cardoso, faces the challenging task of raising interest rates significantly while also reducing the excess liquidity of the naira in the market, according to Charlie Robertson, the Head of Strategy at FIM Partners.

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Cardoso’s primary objectives include strengthening the bank’s foreign-exchange reserves, which currently stand at $33.3 billion, with approximately 90% of these reserves serving as collateral for loans from both foreign and domestic banks. Additionally, he must swiftly consider interest rate hikes, a move that puts him in contrast with his old friend, Tinubu, who advocated for lower borrowing costs in his inaugural address.

Charlie Robertson emphasized the importance of both raising rates and reducing naira liquidity to demonstrate a serious commitment to currency stabilization, suggesting that a one-year yield of around 20% could make the naira a more attractive investment.

However, higher interest rates may pose challenges for the government, increasing its borrowing costs and exacerbating its fiscal situation, as debt service payments already consume most of its revenue. Such a rate hike could also impact local businesses, further contribute to inflationary pressures, and potentially hinder Nigeria’s modest economic growth, which stood at 2.5% in the second quarter.

Governor Cardoso emphasized a commitment to evidence-based monetary policies, moving away from whimsical decision-making.

Meanwhile, Tinubu faces limited fiscal maneuvering room, with debt service accounting for 96% of revenue in 2022. Access to international debt markets remains constrained due to the country’s junk credit rating and double-digit yields, despite initial reforms.

Nigeria’s Finance Minister, Wale Edun, recently highlighted that the central bank’s overdue forward contracts totaling $6.8 billion with domestic lenders are contributing to naira volatility.

Godwin Okafor, The Naija247news
Godwin Okafor, The Naija247newshttps://naija247news.com
Godwin Okafor is a veteran Financial Journalist, Internet Social Entrepreneur, and the visionary Founder of Naija247news Media Limited. With an extensive career spanning over 16 years in financial journalism, Godwin possesses a wealth of experience that seamlessly bridges both traditional and digital media landscapes. His journey in journalism commenced at Business Day, Nigeria, where he laid the foundation for his prolific career. In 2010, Godwin took a bold step by founding Naija247news Media, a platform that has since become a prominent player in delivering timely and accurate news. Educationally, Godwin Okafor holds a Bachelor's degree in Industrial Relations and Personnel Management from the prestigious Lagos State University, Ojo, Lagos. His commitment to continuous learning led him to the Lagos Business School, where he further honed his skills. Additionally, he is recognized as a Fellow of the University of Pennsylvania, having successfully completed the Wharton Seminar for Business Journalists. Throughout his illustrious career, Godwin has earned acclaim by winning numerous journalism awards, a testament to his dedication to excellence in reporting. Beyond his role as a Financial Journalist, Godwin Okafor wears the hat of the Chairman at Emmerich Resources Limited, the publishing entity behind Naija247news. His visionary leadership has played a pivotal role in shaping the media landscape and establishing Naija247news as a trusted source of information. Godwin Okafor's multifaceted expertise, commitment to journalistic integrity, and leadership in the realm of business journalism underscore his influential presence in both the media and entrepreneurial spheres.

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