Foreign investors are growing increasingly frustrated with Olayemi Cardoso, the governor of the Central Bank of Nigeria (CBN), as his promised reforms face delays and resistance. Despite Cardoso’s commitment to structural changes at the CBN, the slow progress of these reforms is causing concerns among investors and negatively impacting the broader economy.
One major area requiring urgent attention is the arbitrary cash reserve ratio (CRR) debits imposed on banks by the CBN. Cardoso, who had criticized these debits as “silly” in discussions with investors, has been unable to halt or reverse the practice, leading to intensified liquidity issues in banks. The rush by banks to unload excess naira cash before CBN debits have created market distortions and contributed to artificially low interest rates, raising apprehensions among investors.
Although Cardoso acknowledged the persistence of CRR debits during a rare public address at the Chartered Institute of Bankers of Nigeria’s annual dinner, the lack of concrete action has eroded confidence in his leadership. Investors are drawing parallels with Cardoso’s predecessor, Godwin Emefiele, known for using CRR debits to mop up liquidity. This strategy, aimed at reducing pressure on the currency, has persisted under Cardoso but at the cost of market distortions and decreased sector profitability.
Foreign investors are also expressing concerns about low interest rates on Treasury bills, further complicating the investment landscape. Despite an increase in the interest rate on the CBN’s liquidity tool (OMO) since Cardoso’s appointment, investors argue that T-Bill rates need upward adjustment to attract meaningful dollar supply and address acute foreign exchange shortages.
At a recent auction on January 10, the one-year Treasury bill yielded 12.24 percent, significantly below the country’s inflation rate, which hit a 20-year high of 28.92 percent in December. This results in a negative real return for investors, making Nigeria less attractive compared to its African peers.
As the CBN continues to aggressively raise interest rates, anticipation builds for the upcoming Monetary Policy Committee (MPC) meeting in February, Cardoso’s first since taking office. Investors are closely monitoring the meeting for insights into the CBN’s plans to stabilize the depreciating naira. However, some investors fear disappointment, noting that the MPC meeting may not be the appropriate venue for announcing structural reforms but rather a forum for rate-setting decisions.
