By Kehinde Ibrahim, Lagos
The series of reforms initiated by the Central Bank of Nigeria ,CBN, are reflected in a stronger external reserve position, a more market-oriented foreign exchange framework and renewed efforts to restore confidence in monetary policy.
Olayemi Cardoso took over the leadership of the CBN in September 2023 at a time when Nigeria’s financial system was under considerable pressure. The foreign exchange market was characterised by multiple exchange rates, liquidity constraints and significant uncertainty, while inflation was accelerating and concerns about the credibility of monetary and financial-sector policies were widespread.
The CBN subsequently embarked on reforms designed to restore monetary policy credibility, improve foreign exchange market functioning, strengthen the banking system and rebuild the institution’s financial buffers.
Three years on, the results present a mixed but significant picture. Nigeria has recorded a substantial improvement in its external reserve position, the naira has experienced periods of greater stability, banks are undergoing a major recapitalisation exercise and monetary policy has moved through one of its tightest cycles in years before beginning to ease.
However, the reforms led to considerable adjustment costs as high interest rates increased financing costs for businesses and households, while elevated living expenses continued to weigh on consumers. The CBN therefore faces the difficult task of balancing inflation control with the need to support sustainable economic growth.
One of the most visible indicators of the reform effort has been the rebuilding of Nigeria’s external reserves.
The reserves, which provide the country with an important buffer against external shocks and support the CBN’s capacity to manage foreign exchange pressures, have strengthened considerably in 2026.
The improvement became particularly notable as reserves moved above the $50 billion threshold in June and continued rising in subsequent months. By July, the reserves had climbed above $52 billion, reflecting stronger foreign exchange inflows and improved external liquidity.
The strengthening of reserves has provided the CBN with greater policy space and has helped improve perceptions of Nigeria’s ability to meet external obligations and withstand periods of pressure in the international financial system.
For an economy that has historically been vulnerable to swings in crude oil prices and foreign capital flows, the accumulation of reserves is particularly important. A stronger external buffer provides the authorities with greater capacity to respond to sudden changes in foreign exchange supply and demand.
The improvement also represents a significant change from periods when falling reserves intensified pressure on the naira and constrained the CBN’s ability to respond to volatility in the foreign exchange market.
The reserve accumulation has been supported by several factors, including improved crude oil production, foreign exchange inflows and measures aimed at improving transparency in the foreign exchange market.
Nigeria’s oil production has also strengthened, providing additional support to government and external-sector revenues. At the same time, the CBN has continued to pursue measures designed to improve the supply of foreign exchange through official channels.
The foreign exchange market has arguably been the most important testing ground for Cardoso’s reforms.
When the current administration assumed office, the naira was operating within a complex exchange-rate environment characterised by multiple market segments and substantial differences between official and parallel-market rates.
The CBN subsequently moved towards a more market-driven framework, allowing the exchange rate to respond more directly to supply and demand conditions.
The transition initially produced significant volatility.
The naira weakened sharply, while businesses and consumers faced uncertainty over the cost of imported goods, raw materials and foreign obligations. For manufacturers and other companies dependent on imported inputs, exchange-rate movements translated into higher operating costs.
Yet, the reform was intended to address a deeper problem: the distortions created by an exchange-rate system in which different users could access foreign exchange at different rates.
The CBN’s strategy has gradually focused on improving price discovery, increasing transparency and allowing market forces to play a greater role in determining the value of the naira.
By 2026, the foreign exchange market had become considerably more stable than during the most turbulent period of the reform process. The naira has traded within relatively narrower ranges in the official market, while the gap between official and parallel-market rates has reduced substantially compared with previous years.
The improvement in market conditions has been reinforced by stronger reserves.
For investors, the combination of greater exchange-rate transparency and stronger external buffers is important because it reduces uncertainty around the ability of the authorities to meet foreign exchange obligations.
It is also significant for domestic businesses, which require a more predictable foreign exchange market for planning, importing equipment and raw materials, servicing foreign obligations and making investment decisions.
But exchange-rate reform remains a work in progress.
The CBN must continue to deepen market liquidity, ensure that legitimate foreign exchange demand can be met efficiently and maintain confidence that the market will operate according to transparent rules.
The institution’s handling of monetary policy has been another defining feature of Cardoso’s tenure.
In response to persistent inflation and currency pressures, the CBN adopted a tight monetary policy stance, raising the Monetary Policy Rate to historically high levels.
The objective was to contain excess liquidity, moderate inflationary pressures, support the naira and anchor inflation expectations.
The policy, however, came with significant costs.
Higher interest rates increased borrowing costs for businesses and households and placed additional pressure on companies seeking working capital. Small and medium-sized businesses, in particular, faced a difficult financing environment.
For investors, the high-yield environment also changed the attractiveness of government securities and other fixed-income instruments, influencing the allocation of capital within the financial system.
The CBN nevertheless maintained the restrictive stance for an extended period as inflation remained elevated.
By 2026, the inflation picture had begun to change.
Inflation moderated to 15.39 per cent in August 2026 from 15.43 per cent in July, according to the latest figures available to the market. While the rate remains significant, the sustained moderation provided greater room for the CBN to reconsider the intensity of its monetary tightening.
That shift became evident in September when the Monetary Policy Committee cut the Monetary Policy Rate by 350 basis points to 23 per cent.
The reduction was significant because it represented the largest single rate cut in the CBN’s history.
The move signalled that the apex bank considered the inflationary environment sufficiently improved to begin reducing the degree of monetary restraint.
Importantly, the rate cut did not represent a complete departure from liquidity management.
The CBN retained other key policy instruments, including existing reserve requirements for deposit money banks and merchant banks. This suggests that the apex bank is seeking to ease the cost of money while retaining tools to manage liquidity and guard against renewed inflationary pressures.
The evolution of monetary policy under Cardoso therefore illustrates the central challenge confronting the CBN: maintaining price stability while creating conditions for sustainable economic growth.
Another major pillar of the reform programme has been the recapitalisation of the banking sector.
The CBN introduced a new minimum-capital requirement for banks, requiring institutions to strengthen their capital bases within the prescribed regulatory framework.
The exercise has triggered significant capital-raising activities across the industry, including rights issues, public offers, private placements and other strategic transactions.
The rationale behind the recapitalisation programme is to ensure that banks have stronger buffers to absorb losses, withstand economic shocks and expand lending to productive sectors.
For the wider economy, the exercise could have implications beyond the banking sector.
Banks remain the dominant source of formal financing for many Nigerian businesses. Stronger institutions should be better positioned to finance large-scale projects and support businesses as the economy expands.
The recapitalisation exercise also comes at a time when Nigeria requires substantial investment in infrastructure, manufacturing, energy, agriculture and technology.
However, stronger bank balance sheets alone will not automatically translate into cheaper credit.
The cost of lending will continue to depend on inflation, monetary policy, risk perception, fiscal conditions and the broader operating environment.
The CBN’s reforms have also placed renewed emphasis on the quality and credibility of financial-sector regulation.
The objective is to strengthen supervision, improve governance and ensure that banks maintain adequate buffers against emerging risks.
This is particularly important given the increasing exposure of Nigerian banks to government securities.
The financial system has historically maintained substantial exposure to government debt, making the relationship between fiscal policy and monetary policy particularly important.
The CBN therefore faces the challenge of ensuring that financial institutions remain profitable and liquid without allowing excessive concentration of assets in government securities to crowd out private-sector lending.
The International Monetary Fund has highlighted the exposure of Nigerian banks to government securities, noting that government securities account for a significant share of bank assets.
The issue is important because the effectiveness of monetary policy ultimately depends on how financial institutions transmit policy changes into the wider economy.
If banks respond to monetary easing primarily by increasing holdings of government securities rather than expanding credit to businesses, the impact on productive investment may be limited.
This is one of the areas that will require close attention as the CBN moves into the next phase of its reform programme.
Beyond banking and foreign exchange, the Cardoso administration has sought to restore confidence in the institutional credibility of the CBN.
For monetary policy to work effectively, market participants must believe that policy decisions are based on clear objectives and that the institution will maintain consistency in pursuing them.
Communication has therefore become increasingly important.
The CBN has sought to provide clearer explanations of monetary policy decisions, foreign exchange developments and financial-sector reforms.
Greater transparency is also important for foreign investors, who require reliable information when assessing Nigerian assets.
The strengthening of reserves has provided another important confidence signal.
Nigeria’s reserves exceeded $52 billion in July 2026, while the country’s external position continued to benefit from improved foreign exchange inflows.
The reserve build-up has occurred alongside improved conditions in the official foreign exchange market and greater confidence in the direction of monetary policy.
These developments have also coincided with renewed interest in Nigerian financial assets.
Nigeria’s planned reinclusion in global frontier-market benchmarks is another development with implications for investor perception. The return of Nigerian securities to major international indices could improve visibility among institutional investors and broaden the pool of investors considering Nigerian assets.
Nevertheless, international investor confidence remains sensitive to exchange-rate liquidity, capital repatriation, inflation and the predictability of economic policy.
The CBN therefore faces the task of ensuring that the improvements achieved so far are sustained.
The broader economy has also shown signs of strengthening.
Nigeria’s real Gross Domestic Product grew by 4.43 per cent in the second quarter of 2026, compared with 3.89 per cent in the first quarter and 4.23 per cent in the corresponding quarter of 2025.
The performance reflected improvements across key sectors, including oil production and services.
Oil output rose from about 1.55 million barrels per day to 1.72 million barrels per day, providing additional support for foreign exchange earnings and government revenue.
The services sector remained the largest contributor to economic output, accounting for more than half of GDP, while industry also maintained a significant share.
For the CBN, stronger economic growth provides an important backdrop for monetary-policy easing.
But the relationship between monetary policy and economic growth remains delicate.
A premature or excessive easing of monetary conditions could potentially reignite inflationary pressures or increase demand for foreign exchange. Conversely, maintaining very high interest rates for too long could constrain investment and weaken the ability of businesses to expand.
This balancing act will become increasingly important as the economy approaches the 2027 election cycle.
Cardoso has indicated that the CBN is prepared to manage excess liquidity associated with election-related spending. The concern is that a sudden increase in liquidity could put pressure on inflation and the foreign exchange market.
The central bank’s ability to sterilise excess liquidity will therefore be an important component of monetary stability over the coming months.
Three years into the Cardoso era, the CBN’s reform programme has changed the operating environment for Nigeria’s financial markets.
The most visible developments are the stronger external reserve position, greater exchange-rate transparency, a significant shift towards more conventional monetary-policy management and the ongoing recapitalisation of banks.
Yet, the reforms should also be assessed against the challenges that remain.
Inflation, although moderating, continues to affect household purchasing power. Businesses still face high financing and operating costs. The foreign exchange market requires continued liquidity and confidence, while the banking sector must translate stronger capital positions into sustainable lending to the productive economy.
The next phase of the CBN’s reform agenda will therefore be less about emergency stabilisation and more about consolidation.
The institution will need to preserve the gains made in reserves and foreign exchange stability while ensuring that monetary policy supports sustainable growth.
It will also need to maintain regulatory discipline across the banking sector, improve policy communication and ensure that the financial system remains resilient as economic conditions evolve.
Three years after Cardoso took over, the central bank has moved from an environment dominated by severe currency and inflation pressures towards one in which policymakers have greater room to focus on consolidation and long-term stability.
The increase in reserves provides a stronger external cushion. The movement towards a more transparent foreign exchange market has reduced some of the distortions associated with multiple exchange rates. The moderation in inflation has created room for monetary easing, while banking-sector recapitalisation is strengthening the financial system’s capital base.
The durability of these gains, however, will depend on consistency.
For Nigeria, the central question is no longer simply whether reforms can produce short-term improvements, but whether they can establish a monetary and financial framework capable of supporting investment, productivity and sustainable economic expansion.
That will ultimately shape the next phase of the CBN’s reform programme as Cardoso moves beyond his third year in office.
For now, the data show a central bank that has rebuilt a significant part of its external buffer, altered the structure of the foreign exchange market and begun transitioning from aggressive monetary tightening towards a more balanced policy stance.
The challenge ahead is to preserve those gains while ensuring that the benefits of greater monetary and financial stability increasingly reach businesses, investors and households across the Nigerian economy.
