Olayemi Cardoso has announced a sharp reduction in the Central Bank of Nigeria’s financing to the federal government, cutting “ways and means” lending by nearly 90 per cent from ₦26.95 trillion in 2023 to ₦2.84 trillion as of January 2026. The move aims to restore monetary policy independence and end years of fiscal dominance that had undermined the central bank’s ability to manage inflation and maintain exchange rate stability. The tightening measures have helped stabilise the economy, with inflation dropping from 34.8 per cent in late 2024 to 15.06 per cent in February 2026, while external reserves have risen to $50.12 billion and exchange rate pressures have eased.
The dramatic reduction in central bank financing represents a fundamental shift in the relationship between fiscal and monetary authorities. Under previous administrations, the government routinely relied on central bank advances to cover budget shortfalls, a practice that injected large sums of naira into the economy without corresponding increases in output, fuelling inflation and putting pressure on the exchange rate. By sharply curtailing this practice, the CBN has signalled its commitment to maintaining policy discipline and forcing the government to rely on other sources of financing, including domestic borrowing and revenue mobilisation.
From a macroeconomic perspective, the reduction in ways and means advances has been a key factor in the disinflationary trend observed over the past year. With the central bank no longer monetising fiscal deficits, the growth in money supply has slowed, reducing the demand pressure that previously drove price increases across goods and services. The coordinated approach, combining monetary tightening with fiscal restraint, has created conditions for a sustained reduction in inflation, though Cardoso acknowledged that risks remain, including food inflation, election spending, and global oil market volatility.
The CBN is now preparing to transition to an inflation-targeting framework, which would anchor expectations and provide a clear policy rule for monetary policy decisions. This framework, common among advanced and emerging market central banks, requires both policy credibility and the institutional capacity to forecast inflation and communicate policy intentions effectively. The progress made in reducing inflation and stabilising the exchange rate provides a foundation for this transition, but maintaining discipline will be essential as political pressures mount ahead of election cycles.
External reserves have risen to $50.12 billion, supported by improved oil production, higher global prices, and reduced pressure on the currency from speculative demand. The combination of higher reserves and tighter monetary policy has contributed to exchange rate stability, reducing the volatility that historically discouraged foreign investment. For investors, the CBN’s demonstrated commitment to policy discipline and independence enhances confidence in the predictability of Nigeria’s macroeconomic environment.
