Can CBN Curb Inflation At 21.4% In 2024?
Plans by the Central Bank of Nigeria (CBN) to curb inflation at 21.4 per cent in 2024 have continued to generate interest, drawing mixed reactions from experts who feel the economy is not moving in the right direction to achieve such.
The CBN under its current Governor, Olayemi Cardoso has declared to target inflation at 21.4 per cent amid the persisting foreign exchange challenges, and insecurity, among others. Cardoso in his keynote address at the 2024 Macroeconomic Outlook of the Nigerian Economic Summit Group (NESG), stated that economic growth would also be aided by improved agricultural productivity and the easing of global supply chain pressure, which will benefit businesses, boosting consumer confidence and purchasing power.
According to him, “The anticipated moderation in pump prices of PMS, due to the expected operational status of the country’s government and private-owned refineries in 2024 is a pivotal factor in the economic equation.
“The economic stabilisation or reduction in fuel cost is poised to have far-reaching implications across various sectors, contributing significantly to overall economic efficiency and resilience”, stated the Governor who noted that inflationary pressures, expectedly would decline in 2024 due to the CBN’s inflation-targeting policy, which aims to rein in inflation to 21.4 per cent.
The CBN chief said the apex bank’s adoption of inflation targeting framework involves clear communication, use of monetary policy instruments and collaboration with fiscal authorities to achieve price stability and positively influence consumer behaviour.
He insisted that decreasing inflation will have a profound impact on businesses, providing a more predictable cost environment and potentially, leading to lower policy rates, stimulating investment, fueling growth and creating job opportunities.
In early 2024, Nigeria witnessed a free fall of the Naira at the foreign exchange market and since the Bola Tinubu-led administration removed fuel subsidies, the price of petrol has skyrocketed, contributing to a hike in the cost of goods and services across the country.
Currently, the CBN is battling foreign exchange backlogs in critical sectors such as aviation, among others and it would be recalled that, after months of speculation around Nigeria’s foreign exchange backlog, Cardoso revealed that the country’s “valid forex backlogs” stand at $2.2 billion after a forensic audit of the initial $7 billion claims.
Inflation hits a 30-year peak in Nigeria owing to foreign exchange scarcity, and insecurity, among other factors affecting domestic macroeconomy growth.
National Bureau of Statistics (NBS) in its latest report on inflation in Nigeria stated it was 29.9 per cent in January 2024, up from 28.92 per cent in December 2023. The rate is the highest in nearly 30 years as food prices surged, exacerbating the cost-of-living crisis and piling more pressure on the CBN to raise interest rates to 22.75 per cent.
Food inflation rose for the 13th straight month in January to 35.41 per cent year on year from 33.93 per cent in December 2023 as inflation in Africa’s biggest economy and most populous nation climbed further, the first time since the country’s return to democratic governance in 1999.
Former governors have always aspired for a single-digit inflation rate, which is part of the mandate of the CBN, inflation in Nigeria has consistently exceeded the upper boundary of the apex bank’s target range of six per cent to nine per cent since 2015, primarily due to the substantial depreciation of the naira.
An instance is the immediate former CBN governor, Godwin Emefiele who in seven years failed to curb rising inflation. Inflation was 8.2 per cent when Emefiele assumed office on June 4, 2014, and he left it at 22.41 per cent when he exited office on June 9, 2023.
In 2018, Emefiele said the CBN was targeting a single inflation rate but the report by NBS revealed that the Consumer Price Index (CPI) used in measuring inflation rate closed in 2018 at 11.44 per cent and in 2019, it increased to 11.98 per cent. In 2020, the inflation rate closed at 15.75 per cent, dropped to 15.63 per cent in 2021 and grew significantly to 21.34 per cent in 2022.
Problem Influencing Inflation Rate in Nigeria
It is on record that the naira depreciation gained momentum following the new government’s decision to eliminate petrol subsidies, coupled with the unification of foreign exchange in June 2023. Also, the record high price level was due in part to continued pressure on the food basket due to lingering insecurity crises, weak mechanisation, and perennial logistic crises.
With the move by the present government to unify the naira at the official rate, it moved from N461.26 against the dollar in June ending 2023 to close January 29, 2024, at N1,348.63 per dollar at the Nigerian Foreign Exchange Market (NAFEM).
Similarly, the exit from Premium Motor Spirit (PMS) subsidy payment (drove the average PMS price up 225.8 per cent to N671.86 in December 2023 and contributed to upticks in the price level.
As Nigeria’s worsening insecurity continues to attract international attention, The Economist described President Bola Tinubu’s security plan as “worrying” amid the deteriorating security situation nationwide, marked by a terrifying spate of kidnappings.
The Economist’s fear also coincided with the concern of the International Monetary Fund (IMF) over the negative effects of high inflation on the consumption of goods and services in the country, even as it downgraded its economic growth forecast for Nigeria to 2.9 per cent from 3.3 per cent.
However, the Fund also projected that the recent reforms by the Federal Government, namely, fuel subsidy removal and elimination of multiple exchange rates will lead to stronger and more inclusive economic growth in the country while calling for further interest rate hikes to tame inflation.
The CBN moves in tackling inflation.
In a move to tackle inflation, the Monetary Policy Committee (MPC) of CBN raised the Monetary Policy Rate (MPR) by 400 basis points to 22.75 per cent from 18.75 per cent, adjusted the asymmetric corridor around the MPR to +100/-700 from +100/-300 basis points; and raised the Cash Reserve Ratio (CRR) from 32.5 per cent to 45.0 per cent and retain the Liquidity Ratio at 30 per cent.
Cardoso noting that the Committee’s decisions were centred on the current inflationary and exchange rate pressures, projected inflation, and rising inflation expectations, said the members were concerned about the persistent rise in the level of inflation and emphasized the Committee’s commitment to reverse the trend as the balance of risk leaned towards rising inflation.
“The Committee, however, acknowledged the trade-off between the pursuit of output growth and taming inflation but was convinced that an enduring output expansion is possible only in an environment of low and stable inflation,” he said in a communique and explained that the major factors driving inflationary pressure remain exchange rate pass-through, rising cost of energy, high fiscal deficits, and lingering security challenges in major food-producing areas.
“In addition, global factors such as tight financial conditions and trade disruptions from ongoing geopolitical tensions, remain significant upside risks to the outlook for domestic inflation. Staff forecasts therefore indicate that inflation will remain on an upward trajectory in the near term before commencing a descent,” he said.
Mixed Reactions on Curbing Inflation Rate to 21.4%
Reacting, the CEO of Wyoming Capital & Partners, Tajudeen Olayinka told InsideBusiness that, “The projections will not come to pass as indicated, unless there’s a radical shift in foreign investors’ current negative perception of our markets.
“So, monetary and fiscal authorities must do much more than what they are currently doing before that radical shift can take place. There has to be sustained liquidity in the foreign exchange market before you can either improve domestic production or bring down inflation.”
However, for the Director/Chief Executive Officer of the Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf, a key inflation trigger is the resumption of the Dangote refinery and the Port Harcourt refinery, which he said will guarantee supply and moderate energy prices.
“If all our local refineries are working and Nigeria is no longer importing crude oil, it is possible that energy costs may drop. Once NNPC is supplying adequately to these refineries, we are likely to see a drop in the cost of energy. As you likely know, the cost of energy is a major driver of the inflation rate”, Yusuf stated.
“Prices are made up of costs and the margin. One clear thing is guaranteed supply and price moderation. Because energy prices lead to inflationary pressures, the guaranteed supply would help to moderate inflation,” he said.
On his part, the former President of the Chartered Institute of Bankers of Nigeria (CIBN), Segun Ajibola queried the plan of action by the CBN, component strategies, and programs to tackle the inflation monster in Nigeria.
“Inflation now is the elephant in the room and how do we get rid of it? My concern is not about figures. The question is what journey are we embarking upon to push down the inflation rate to 21.4 per cent this year?
He said the problem with inflation in Nigeria is that over the period, the authorities have failed to carry out the right diagnosis and cannot prescribe rightly.
“I have seen CBN over the years struggling to apply monetary policy solutions to Nigeria’s inflationary problems. To be, it is to prove we are on top but the reality is that the kind of inflation we have in Nigeria is not the type monetary actions can resolve”, Ajibola stated
Head, of Financial Institutions Ratings at Agusto & Co., Ayokunle Olubunmi, stated that the drop in inflation rate to 21.4 per cent in 2024 depends on the foreign exchange market.
“If the CBN can tame the devaluation of the Naira, that will help to a large extent, otherwise the set target by CBN this year will be a mirage. Increasing food prices remains one of the significant contributors to the high inflation rate. The earlier they can tame insecurity in the country, and boost the food supply, the better. I do not think they can curb inflation at 21.4 per cent if they can’t find out ways to tackle insecurity in the country”, Ayokunle concluded
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