Barbara Bako, Bangkok.
Central Bank of Nigeria (CBN) Governor Olayemi Cardoso has attributed the market’s relatively smooth response to a surprise monetary policy decision to improved communication, stronger macroeconomic conditions and renewed confidence in the apex bank.
Cardoso said the bank’s efforts to strengthen coordination between fiscal and monetary authorities, improve its interest rate framework and explain policy decisions more clearly had helped market participants understand the rationale behind its actions.
He spoke during a panel session titled How Central Banks Decide, moderated by Dan Katz, First Deputy Managing Director of the International Monetary Fund (IMF), at the IMF/World Bank Annual Meetings in Bangkok, Thailand.
The session also featured Martin Schlegel, Chairman of the Governing Board of the Swiss National Bank, and Emmanuel Moulin, Governor of Banque de France.
Cardoso said the CBN’s approach to communicating its decisions had become particularly important following Nigeria’s recent economic stabilisation efforts and the need to rebuild confidence after a period of currency crisis and investor uncertainty.
“You can announce a decision first and leave people wondering how it relates to other developments. Alternatively, you can explain the context,” he said.
According to him, the CBN deliberately provided additional explanations following the monetary policy decision that surprised market participants, outlining the economic conditions, policy adjustments and challenges that informed the outcome.
He said Nigeria’s external reserves had reached their highest level in 18 years, while inflation was declining consistently and economic growth remained at a reasonable pace.
These developments, he explained, created room for the bank to address weaknesses in the monetary policy transmission mechanism, which determines how changes in policy rates affect borrowing costs, financial conditions and economic activity.
Cardoso also identified improved coordination between fiscal and monetary authorities as a key element of the CBN’s efforts to strengthen policy credibility.
He said the two authorities had signed a memorandum of understanding to align their actions towards common economic objectives, an arrangement he described as well received.
The introduction of the overnight financing rate had also improved clarity around actual interest rate conditions, he added.
According to Cardoso, these measures helped provide the context necessary for markets to assess the bank’s decisions, even when the outcome differed from expectations.
“The market must have seen the central bank consistently doing the right things over time and developed confidence that it can trust the institution,” he said.
He stressed that credibility was essential for managing policy surprises, noting that market participants were better able to absorb decisions when they understood the underlying economic conditions and trusted the institution communicating them.
The CBN governor also highlighted the importance of independent thinking and diverse perspectives in monetary policy decision-making, particularly through the participation of external members of the Monetary Policy Committee (MPC).
Cardoso said the inclusion of independent-minded external members helped reduce the risk of groupthink and strengthened the quality of deliberations by introducing perspectives that might differ from those of officials working within the institution.
He explained that internal members could sometimes become attached to established practices because of their continuous engagement with the same data, processes and institutional assumptions.
To ensure their effective participation, Cardoso said the CBN provided external members with resources, access to specialist expertise and opportunities to engage with experts from other central banks.
He added that external members were involved early in discussions on major policy issues, including Nigeria’s transition towards inflation targeting, rather than being brought into the process at the last minute.
The governor said the chairman’s role was to guide discussions towards productive outcomes while ensuring that members could express their views independently.
He also explained that he reviewed individual members’ statements to understand the reasoning behind their positions and identify areas requiring further consideration.
Cardoso said separating areas of agreement from areas of disagreement helped prevent committees from becoming trapped in prolonged debates over relatively minor differences.
The other panellists described different institutional approaches to monetary policy decisions, highlighting the importance of informed debate, effective leadership and clear communication.
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