According to Yemi Cardoso, the governor of the Central Bank of Nigeria (CBN), ongoing inflation may make monetary tightening measures more difficult to implement and reduce the country’s capacity for growth.
In the foreword of the CBN’s Macroeconomic Outlook for Nigeria, which was just published by the central bank, he stated.
Based on this foreword, the governor of the central bank suggests that if inflation keeps rising, the apex bank may stick to its hawkish monetary policy, which is supported by higher interest rates.Â
A few days ago, the National Bureau of Statistics (NBS) released the CPI data, which shows that the inflation rate increased somewhat in June and increased month over month for the first time since February 2024. This outlook includes this foreword.
Risks to the optimistic domestic outlook in Nigeria
Cardoso went on to list some threats to Nigeria’s optimistic domestic outlook. He pointed out that supply-side shocks, global geoeconomic fragmentation, and security issues might all make inflationary pressures worse.
These elements, along with persistent structural imbalances, may make prolonged monetary tightening necessary, which would lower potential growth.
He stated: “The promising domestic outlook is, however, vulnerable to certain risks, particularly given the potential for supply-side shocks, global geoeconomic fragmentation, and security challenges to exacerbate inflationary pressures.”
“Long-standing structural imbalances could lead to elevated inflation, which could prolong monetary tightening and lower growth potentials.”
“Handling foreign exchange receipts, reducing accretion to the external reserves, increasing pressure in the foreign exchange market, and undermining domestic stability are additional potential consequences of oil theft, pipeline vandalism, and an unlikely decline in crude oil price.”
Nigeria’s economy is still strong
According to the governor of the CBN, despite current obstacles, Nigeria’s economy is forecast to grow at a steady pace, with inflation predicted to moderate and exchange rates to remain more stable.
He stated that growth is predicted to increase from 2.74% in 2023 to 3.38% in 2024 as a result of increases in domestic crude oil output and refining capacity as well as projected increases in crude oil prices.
Even though inflation is still high, it is expected to decline to 21.40% between 19.84 to 25.35% in December 2023 from 28.92%. This is because expectations will be effectively anchored by the shift to an inflation-targeting light framework and strict monetary policy.
Cardoso added that tight liquidity conditions are anticipated to persist, with an upward move in the yield curve drawing in capital inflows.
Reducing dangers
Cardoso emphasized the need to maintain reforms to fortify the foreign exchange market, accelerate monetary tightening to reduce inflation risks, and address security concerns surrounding the food belt and oil installations to address prospective threats and existing imbalances.
In order to promote policy harmonization and guarantee strong synchronization of socioeconomic actions, he further urged for enhanced and efficient coordination among all government policy agencies. This would, he claimed, support economic governance under a common vision and support domestic development.
Cardoso stressed that the outlook’s goal is to evaluate current events and estimate the short-term prospects for the Nigerian economy while outlining its reasoning.
He made the point that earlier economic narratives were frequently devoid of comprehensive knowledge about crucial industries, sociopolitical events, and policy viewpoints that influence economic outcomes. Instead, they were mostly shaped by external institutions and human initiatives.
What to note
In June 2024, the National Bureau of Statistics (NBS) released the latest Consumer Price Index (CPI) data. It showed that Nigeria’s headline inflation rate increased month over month for the first time since February 2024.
The CPI, which tracks how prices of goods and services that people use daily have changed on average over time, increased from 2.14% in May 2024 to 2.31% in June 2024.
Next week, on July 22 and 23, 2024, the Monetary Policy Committee (MPC) is scheduled to convene for its fourth meeting of the year.
With headline inflation now at 34.19% year over year, this month’s increase in the monetary policy rate (MPR) is anticipated.
