Nigeria: CBN’s three-year reform programme faces real economy test

Three years after Olayemi Cardoso assumed office as Governor of the Central Bank of Nigeria, the apex bank has made measurable progress in rebuilding foreign reserves, improving foreign exchange market transparency and strengthening financial-sector resilience.

Yet high borrowing costs, a significantly weaker naira and the slow transmission of improved macroeconomic indicators to businesses and households show that the reform programme is entering a more difficult phase, with its success increasingly dependent on whether financial stability can translate into broader economic gains.

When Cardoso took charge of the Central Bank of Nigeria (CBN) on September 22, 2023, the institution was confronting multiple challenges.

Headline inflation stood at 26.72 per cent, the Monetary Policy Rate (MPR) was 18.75 per cent and gross external reserves were about $33.2bn. The official exchange rate was around N770 to the dollar, although limited liquidity meant many businesses struggled to access foreign exchange at that rate.

The bank was also dealing with more than $7bn in unsettled foreign exchange obligations, an expanding development-finance portfolio and weakened confidence in monetary management.

Cardoso responded with a return to more conventional central banking, reducing direct development financing, tightening monetary conditions, limiting discretionary foreign exchange allocation and raising capital requirements for banks.

Three years on, several indicators have improved. Foreign reserves have risen substantially, the FX market has become more transparent, banks have raised significant fresh capital and inflationary pressures have moderated. The CBN’s latest policy rate decision also reset the MPR to 23 per cent, down from 26.5 per cent.

But the adjustment has come with significant costs. Interest rates remain elevated, the naira is considerably weaker than in 2023 and households continue to absorb the effects of earlier increases in food, transport, energy and housing costs.

From monetary tightening to policy recalibration

Cardoso’s most consequential policy shift was placing price stability at the centre of monetary policy.

Under the previous leadership, the CBN had become heavily involved in financing agriculture, manufacturing, aviation, electricity and other sectors. Cardoso’s administration began scaling back these interventions and refocused the institution on inflation management, liquidity conditions, financial stability and the integrity of the monetary system.

The governor has defended the return to orthodox monetary policy, arguing that the previous approach blurred the boundaries between fiscal and monetary responsibilities.

The CBN has said these challenges reduced transparency, weakened the effectiveness of policy interventions and contributed to an opaque and inefficient foreign exchange market.

When the Monetary Policy Committee (MPC) reconvened in February 2024 after a prolonged break, it raised the MPR by 400 basis points from 18.75 per cent to 22.75 per cent.

The rate subsequently rose to 24.75 per cent in March, 26.25 per cent in May, 26.75 per cent in July, 27.25 per cent in September and 27.50 per cent in November.

The tightening cycle began to reverse in September 2025, when the MPC cut the rate by 50 basis points to 27 per cent. It held the rate in November before another 50-basis-point reduction to 26.5 per cent in February 2026. The rate remained unchanged in May and July.

A more substantial shift came in September 2026, when the MPC reset the MPR by 350 basis points to 23 per cent and recalibrated the Standing Facilities Corridor to +50/-300 basis points. The CRR for deposit money banks remained at 45 per cent.

Cardoso presented the move as a recalibration intended partly to reconnect the policy rate with prevailing money-market conditions and improve monetary-policy transmission.

Inflation has also moderated considerably. The CBN currently reports the rate at 15.39 per cent, although comparisons with the pre-2025 series require caution because the National Bureau of Statistics rebased the Consumer Price Index in January 2025 and changed expenditure weights and the reference year.

The rebased series nonetheless shows a gradual easing in inflationary pressure, with the rate falling from 15.93 per cent in May to 15.91 per cent in June, 15.43 per cent in July and 15.39 per cent in August 2026.

The next challenge is transmission.

Commercial lending rates rose above 30 per cent in parts of the market during the tightening cycle. While private-sector credit has increased, government borrowing has also expanded significantly, raising concerns about the allocation of scarce banking-sector liquidity.

The Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, has warned that rising Federal Government borrowing from domestic financial markets could crowd out businesses as banks favour government securities offering relatively attractive returns and lower perceived risk.

The September rate reset therefore begins a new test: whether improved monetary conditions will translate into lower borrowing costs and redirect more credit towards productive businesses.

FX reforms rebuild external buffers

The foreign exchange market provides some of the clearest evidence of change under Cardoso, although it has also generated some of the most visible adjustment costs.

The move towards exchange-rate unification began in June 2023, before Cardoso assumed office. He inherited a market characterised by more than $7bn in unsettled obligations, a wide gap between official and parallel rates and weak confidence among businesses and investors.

The CBN subsequently verified the outstanding claims and announced the settlement of valid obligations. It also introduced the Electronic Foreign Exchange Matching System, revised rules for Bureau de Change operators and strengthened reporting requirements for authorised dealers and International Money Transfer Operators.

In May 2026, the apex bank launched the fourth edition of its Foreign Exchange Manual as part of efforts to strengthen transparency and improve the efficiency of the FX market.

Licensed BDCs have also gained structured access to foreign exchange through authorised dealer banks.

The reforms have helped narrow market distortions, although the exchange rate has undergone substantial adjustment.

From approximately N770/$ in September 2023, the official rate weakened beyond N1,600/$ during periods of volatility before subsequently recovering.

External buffers, however, have strengthened considerably. The CBN’s own reporting shows reserves rising from about $40.19bn at the end of 2024 to an estimated $45bn at the end of 2025, compared with approximately $33.2bn when Cardoso assumed office.

The latest CBN figures put gross external reserves at $55.25bn as of September 18, 2026, representing a substantial increase from the level inherited in 2023.

The quality of external buffers has also become an important part of the reform story, with stronger net foreign exchange reserves and an improved external position supporting the CBN’s ability to manage liquidity and currency pressures.

But the composition of capital inflows remains relevant. Portfolio investment continues to account for a large share of foreign capital entering the economy, while foreign direct investment remains comparatively modest.

The Director of Deals Advisory at PwC, Wale Olusi, previously argued that monetary policy should not be framed simply as a contest between foreign portfolio investors and domestic businesses.

“That is the job of the central bank. They target job stabilisation of the macroeconomy, which they have achieved,” Olusi said.

The reduction in the MPR now changes the balancing act. Lower rates could support domestic investment and reduce financing costs, but the CBN must ensure that monetary easing does not undermine FX stability or reignite inflationary pressures.

Banking recapitalisation enters the deployment phase

Cardoso also initiated Nigeria’s most significant banking recapitalisation exercise since the 2004 consolidation programme.

In March 2024, the CBN raised minimum capital requirements to N500bn for commercial banks with international authorisation, N200bn for national banks and N50bn for regional banks.

Merchant banks were required to maintain N50bn, while non-interest banks faced thresholds of N10bn or N20bn depending on their licences.

The recapitalisation programme ran from April 1, 2024, to March 31, 2026, with the CBN saying the objective was to build stronger and more resilient institutions capable of absorbing shocks and supporting larger-scale economic activity.

By the end of the exercise, banks had raised substantial new capital, providing a stronger foundation for lending and investment.

The next question is how that capital will be deployed.

President Bola Tinubu recently challenged banks to translate stronger balance sheets into more affordable financing for businesses. Speaking through the Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, he said:

“A resilient banking system cannot exist indefinitely where businesses cannot obtain affordable credit, manufacturing that is struggling cannot expand, and millions of productive MSMEs remain outside of the formal financial system.”

That challenge has become more significant following the September rate reset.

Banks now have larger capital buffers and a lower benchmark interest rate, but the CRR for deposit money banks remains at 45 per cent.

Converting stronger bank capital and lower policy rates into affordable financing for manufacturing, agriculture, infrastructure, exports and MSMEs is therefore emerging as one of the biggest tests of the next phase of Cardoso’s reforms.

The real economy becomes the harder test

Economic activity has strengthened alongside improvements in several financial indicators.

Nigeria’s real GDP expanded by 4.43 per cent in the second quarter of 2026, according to the National Bureau of Statistics, following growth in the first quarter.

But the productive economy has not necessarily moved at the same pace as the improvement in headline macroeconomic indicators.

Manufacturing growth, access to credit, business investment and household purchasing power remain central to determining whether monetary and financial-sector reforms are producing broader economic benefits.

This distinction increasingly defines Cardoso’s next challenge.

During the signing of a Memorandum of Understanding on Fiscal-Monetary Policy Coordination between the Federal Ministry of Finance and the CBN, Oyedele said the government’s objective was to push inflation sustainably into single digits.

“Our objective is to bring inflation sustainably into single digits and keep it there — and that cannot be monetary policy’s job alone,” he said.

“Fiscal policy must play its part: disciplined, disinflationary spending; sound cash and liquidity management; efficient financing that does not crowd out the private sector.”

The International Monetary Fund has similarly called for deeper fiscal, monetary and governance reforms, including stronger revenue mobilisation, public financial management and spending efficiency.

The implication is that the CBN cannot deliver the next phase of economic transformation through monetary policy alone. Fiscal discipline, structural reforms, infrastructure investment and a stronger business environment will determine how effectively monetary stability feeds into productive activity.

Three years on, the reform test has changed

Three years into Cardoso’s tenure, the policy challenge has shifted significantly.

The early phase was dominated by crisis management: rebuilding confidence in the foreign exchange market, tightening liquidity, strengthening reserves, reforming banking supervision and recapitalising financial institutions.

The September reduction of the MPR to 23 per cent signals the beginning of a different phase.

The CBN must now demonstrate that the stability it has spent three years building can translate into cheaper business credit, stronger private investment and faster productive-sector growth without reigniting inflation or destabilising the naira.

For households, the test is even more direct.

Falling inflation does not reverse previous price increases. Higher foreign reserves do not automatically raise household incomes. And stronger bank balance sheets offer limited relief if businesses still cannot obtain credit at rates that allow them to expand, invest and create jobs.

Cardoso’s first three years have largely been about rebuilding monetary and financial stability. The harder test is whether those gains can now move beyond the CBN’s balance sheet and macroeconomic indicators to businesses, jobs, incomes and household living standards.