Addressing inflation requires more than monetary policy
A member of the Central Bank of Nigeria‘s Monetary Policy Committee (MPC), Murtala Sagagi, has highlighted the complex nature of Nigeria’s inflation challenges.
According to him, mere monetary policy readjustments will have a limited impact on inflation rates without simultaneous efforts to tackle the underlying issues of insecurity and food shortages.
According to his statement during the last MPC meeting held between 26 and 27 February, the country needs a comprehensive approach to tackle inflationary pressure.
In recent times, Nigeria has faced persistent challenges with inflation, with rates often driven by factors such as rising food prices and insecurity, disrupting agricultural productivity. These issues have contributed significantly to the country’s inflationary pressures, making it imperative to address them comprehensively.
At the last MPC meeting, the CBN raised the benchmark rate to 22.75 per cent as a means of addressing the pressure.
According to the National Bureau of Statistics, the country’s latest annual inflation rate jumped to 31.70 per cent from 29.90 per cent a month prior, primarily fueled by a continuous surge in food prices.
In his statement, Mr Sagagi highlighted factors that have rendered previous adjustments in the Monetary Policy Rate ineffective.
He cited a weak connection between the banking sector and the real economy, with only a few sectors accessing formal bank loans. Additionally, a small percentage of the 35 million small and medium enterprises, which contribute significantly to output, have access to formal loans.
He also said the structural nature of food inflation, a major component of core inflation, remains a challenge, with no clear path toward achieving food security in the medium term.
This situation, he said, suggests that short-term inflation control measures often have negative impacts on medium-term growth.
“Since early 2022, the reduced confidence in Naira induced many Nigerians to take refuge largely in the US Dollar. Also, the country’s balance sheet, macroeconomic indices, and deteriorating business conditions scared away foreign investors, leaving only a handful of speculative portfolio investors.
“This coupled with massive currency speculation led to the free fall of the Naira, thereby worsening the inflation. In view of this, I would be more inclined to ascribe the current price instability to (a) domestic policy inadequacies and (b) internal structural rigidities rather than any external factors such as the prolonged Russia-Ukraine conflict and other global volatilities. This does not, however, imply that global dynamics are inconsequential,” he said.
He summarised recent and systemic policy actions and inaction that engender macro-economic instability including the border closure affecting food and livestock movement, misuse of monetary tools, poorly-implemented Naira redesign, removal of fuel subsidy without social impact plans, and exchange rate unification causing Naira depreciation.
Systematically, he argued that issues like lack of crude oil refining, agricultural neglect, and mismanagement of subsidies also contribute to Nigeria’s economic instability.
“Considering these, it is my view that monetary policy considerations (i.e., readjustments) will have a limited impact on inflation rates unless they are complemented with efforts to address insecurity and food shortages. This is in addition to a holistic and disciplined roadmap for economic and social rejuvenation,” he said.
Inflation Targeting
Meanwhile, Muhammad Abdullahi, the CBN Deputy Governor, Economic Policy Directorate, speaking Wednesday about the shifts in the conduct of the monetary policy, said CBN is migrating from monetary to inflation targeting.
READ LSO: CBN reiterates directive to banks on utilisation of forex gains
During his presentation at the CITI- CEEMA Macro Conference in London, he said the current monetary policy implementation aims not only to tighten credit through an increase in interest rate but to also reduce borrowing for consumption; increase savings; decrease banking system liquidity to an optimal level and dampen aggregate demand in the short term.
This, he said, will reduce money supply, anchor inflation expectation, and eventually reduce inflation.
“We are confident that the new CBN’s monetary policy initiatives would go a long way in improving the impact of monetary policy actions on the Nigerian economy,” he said.
Support PREMIUM TIMES’ journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
Donate
TEXT AD: Call Willie – +2348098788999
A member of the Central Bank of Nigeria‘s Monetary Policy Committee (MPC), Murtala Sagagi, has highlighted the complex nature of Nigeria’s inflation challenges.
According to him, mere monetary policy readjustments will have a limited impact on inflation rates without simultaneous efforts to tackle the underlying issues of insecurity and food shortages.
According to his statement during the last MPC meeting held between 26 and 27 February, the country needs a comprehensive approach to tackle inflationary pressure.
In recent times, Nigeria has faced persistent challenges with inflation, with rates often driven by factors such as rising food prices and insecurity, disrupting agricultural productivity. These issues have contributed significantly to the country’s inflationary pressures, making it imperative to address them comprehensively.
At the last MPC meeting, the CBN raised the benchmark rate to 22.75 per cent as a means of addressing the pressure.
According to the National Bureau of Statistics, the country’s latest annual inflation rate jumped to 31.70 per cent from 29.90 per cent a month prior, primarily fueled by a continuous surge in food prices.
In his statement, Mr Sagagi highlighted factors that have rendered previous adjustments in the Monetary Policy Rate ineffective.
He cited a weak connection between the banking sector and the real economy, with only a few sectors accessing formal bank loans. Additionally, a small percentage of the 35 million small and medium enterprises, which contribute significantly to output, have access to formal loans.
He also said the structural nature of food inflation, a major component of core inflation, remains a challenge, with no clear path toward achieving food security in the medium term.
This situation, he said, suggests that short-term inflation control measures often have negative impacts on medium-term growth.
“Since early 2022, the reduced confidence in Naira induced many Nigerians to take refuge largely in the US Dollar. Also, the country’s balance sheet, macroeconomic indices, and deteriorating business conditions scared away foreign investors, leaving only a handful of speculative portfolio investors.
“This coupled with massive currency speculation led to the free fall of the Naira, thereby worsening the inflation. In view of this, I would be more inclined to ascribe the current price instability to (a) domestic policy inadequacies and (b) internal structural rigidities rather than any external factors such as the prolonged Russia-Ukraine conflict and other global volatilities. This does not, however, imply that global dynamics are inconsequential,” he said.
He summarised recent and systemic policy actions and inaction that engender macro-economic instability including the border closure affecting food and livestock movement, misuse of monetary tools, poorly-implemented Naira redesign, removal of fuel subsidy without social impact plans, and exchange rate unification causing Naira depreciation.
Systematically, he argued that issues like lack of crude oil refining, agricultural neglect, and mismanagement of subsidies also contribute to Nigeria’s economic instability.
“Considering these, it is my view that monetary policy considerations (i.e., readjustments) will have a limited impact on inflation rates unless they are complemented with efforts to address insecurity and food shortages. This is in addition to a holistic and disciplined roadmap for economic and social rejuvenation,” he said.
Inflation Targeting
Meanwhile, Muhammad Abdullahi, the CBN Deputy Governor, Economic Policy Directorate, speaking Wednesday about the shifts in the conduct of the monetary policy, said CBN is migrating from monetary to inflation targeting.
READ LSO: CBN reiterates directive to banks on utilisation of forex gains
During his presentation at the CITI- CEEMA Macro Conference in London, he said the current monetary policy implementation aims not only to tighten credit through an increase in interest rate but to also reduce borrowing for consumption; increase savings; decrease banking system liquidity to an optimal level and dampen aggregate demand in the short term.
This, he said, will reduce money supply, anchor inflation expectation, and eventually reduce inflation.
“We are confident that the new CBN’s monetary policy initiatives would go a long way in improving the impact of monetary policy actions on the Nigerian economy,” he said.
Support PREMIUM TIMES’ journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
Donate
TEXT AD: Call Willie – +2348098788999
Denial of responsibility! Techno Blender is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – [email protected]. The content will be deleted within 24 hours.