With inflation at 27.33 per cent as at October 2023 according to the National Bureau of Statistics, the highest level in over two decades, the Central Bank of Nigeira has said inflation targeting will be its focus.
Monetary Policy Committee of the CBN has consistently hiked benchmark interest rate to curb the spiraling inflation, it has steadily headed north. The governor of the CBN, Dr Olayemi Cardoso, whilst revealing the direction that the apex bank will be facing under his leadership recently stressed the need to bring down the level of inflation in the country.
Global inflation is forecasted to steadily decline from 8.7 per cent in 2022 to 6.9 percent in 2023 and 5.8 per cent in 2024, due to tighter monetary policy measures and lower international commodity prices, Cardoso said, “It is crucial to note that monetary policy actions and frameworks play a vital role in anchoring inflation expectations during these challenging times.”
Globally, core inflation is expected to decline more gradually, and inflation is not anticipated to return to target levels until 2025 in most cases. In response to these challenges, countries worldwide have adopted various conventional monetary policy measures. Available data indicates a gradual recovery in output in the US, UK, and some emerging market economies. The widespread tightening of monetary policy, aimed at curbing inflation, has restrained economic activity and suppressed growth.
According to Cardoso, the domestic factors affecting Nigeria’s economic performance span a wide range, encompassing both social and economic aspects. “Insecurity remains a pressing issue, affecting the agricultural, industrial, and services sectors simultaneously. The persistently high levels of insecurity have resulted in decreased national output and productivity, as many farmers have been unable to access their farmlands, disrupting supply chains and major economic activities. This has led to food shortages and inflation in various parts of the country.
“A thorough assessment of the economy reveals significant challenges, including high and rising inflation, inadequate foreign exchange supply, depreciation of the exchange rate, limited external reserves, weakened output, and high unemployment. These challenges have led to increased interest rates, discouraging investments in productive activities.
“I recently met with a group of small business owners who expressed their concerns about the impact of inflation on their operations. They shared stories of struggling to maintain affordable prices for their customers while facing rising costs for raw materials and supplies.
“The instability caused by inflation not only affects their profit margins but also hampers their ability to plan for the future. These entrepreneurs stressed the need for price stability to create a conducive business environment that allows them to thrive and contribute to the economy.
“In recent discussions with individuals from different walks of life, I encountered a young family trying to make ends meet in the face of rising prices. They shared their worries about the erosion of their purchasing power and the challenges of meeting basic needs within a tight budget. They emphasized the importance of stable prices to protect the well-being of ordinary citizens and ensure a fair distribution of resources. It is crucial that we prioritise price stability to safeguard the livelihoods of our fellow Nigerians.”
Thus the need for the apex bank to adopt a new strategy towards subduing a rising inflation in the country. According to the CBN governor, the apex bank will be wielding orthodox monetary policies in targeting inflation.
Saying monetary and price stability will be its focus, Cardoso said, “This is not just a technical objective, but it has real-life implications for the wellbeing of our citizens. Through targeted policies, transparent market operations, and coordination between monetary and fiscal authorities, we can ensure a more stable exchange rate, control inflation, and create an enabling environment for businesses and individuals to thrive.
“We have critically reviewed the effectiveness of the Central Bank’s monetary policy tools and have spent time fixing the transmission mechanism to ensure the decisions of MPC meetings actually result in desired objectives. For quite some time, there has been a dislocation of our monetary transmission mechanisms rendering the MPC meetings largely ineffective.
“I am happy to report that our efforts over the past two months have begun to yield fruit. Regular Open Market Operations (OMO) to mop up excess liquidity from the banking system. An OMO auction was recently held with a stop rate of 17.5 per cent for the one-year tenor, attracting oversubscription of N350 billion. Another round of OMO has been approved to further reduce excess liquidity.
“Offering N108.1 billion worth of Treasury Bills with three tenors to the investing public, which can help reduce liquidity in the banking system and support government fundraising. Removal of the cap on the remunerable Standing Deposit Facility (SDF) to increase activity in the SDF window and manage liquidity.
“Sustained Cash Reserve Requirement (CRR) debits, which have moderated liquidity in September and October 2023. Liquidity in the entire banking sector has been significantly reduced to under N100 billion in November. Inauguration of a new liquidity management committee within the Bank that meets daily at 8am to assess liquidity conditions and ensure optimal levels.
“These measures have already started to yield results, as excess liquidity in the banking system has significantly reduced and the Overnight Bank Borrowing (OBB) rate has increased to a level consistent with the monetary policy program. Month-on-month inflation has also begun to decline, with a growth rate of 0.67 per cent in October compared to 0.97 per cent previously.
“While absolute inflation is still rising, the declining rate of growth indicates progress. The CBN is confident that with continued tightening measures for the next two quarters, we will be able to effectively manage inflation.”
