Inflation, otherwise known as rising consumer prices, is becoming a global problem, with the U.S., Britain, and Nigeria seeing inflation rates hit all-time highs of 8.6 percent, 9.1 percent, and 19.6 percent, respectively.
Aside from the huge increase in energy costs fueled partly by Russia’s war in Ukraine, which affects all these countries, Nigeria is at a different low level compared to the U.S. and the UK.
Nigeria’s inflation has been on an increasing spree in the last 6 years, conflicting with the Central Bank’s objective of maintaining single-digit inflation. It is looking practically impossible to reverse inflation from the double-digit it is today to a single digit.
Data from the National Bureau of Statistics (NBS) reveals that the last time Nigeria witnessed single-digit inflation was in January of 2016, with its headline rate pegged at 9.62 percent. This was before President Muhammadu Buhari assumed office.
Although the CBN had on a few occasions expressed hope that the country could speedily recover and achieve a single-digit inflation rate.
However, some of the country’s challenges such as insecurity, exchange rate market pressure, declining capital inflows, high debt service payments, and rising fiscal deficits, pose as barriers.
Some CBN Policies
Recall that the CBN’s Monetary Policy Committee (MPC) had set the inflation tolerance level of 6 to 9 percent, a target which has been surpassed, putting inflation at 19.6 percent.
Governor Godwin Emefiele, who currently heads the CBN, has been under constant scrutiny due to some of the policies the financial regulator initiated aimed at cushioning the effects of inflationary pressures.
Analysts say some of the economic policies and initiatives by the CBN seem insignificant because of the double-digit inflation threshold and its impact on the purchasing power of households. Not that they aren’t impacting.
Among these policies are CBN’s policies on multiple exchange rates, trade restrictions, and the financing of the public deficit.
On trade restrictions, the CBN has banned 41 imported items from accessing forex. The items include rice, cement, margarine, fertilizer, milk and dairy products, maize/corn, palm kernel/palm oil products/vegetable oils, meat and processed meat products, vegetables/processed vegetable products, and poultry/chicken.
Additionally, the Nigerian government tried to close the borders for nearly nine months, but the strategy failed. At the time, food costs increased beyond FG’s expectations, which in turn exacerbated overall inflation.
The World Bank in a document titled “Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual‘. It says CBN’s persistent intervention would cause weaknesses in revenue mobilization, foreign investment, human capital development, infrastructure investment, and governance.
Further, the Anchor Borrowers’ Programme intervention scheme by the CBN, a single-digit loan for the purpose of boosting the agricultural sector of the economy. At least four million smallholder farmers across Nigeria have been supported to boost the production of agricultural commodities in the country.
According to the CBN Governor, between April and May 2022, it released the sum of N57.91 billion under the Anchor Borrowers’ Program (ABP) to 185,972 new projects for the cultivation of rice, wheat, and maize, bringing the cumulative disbursement under the program to N1.01 trillion, disbursed to over 4.2 million smallholder farmers cultivating 21 commodities across the country.
Another is the CBN’s MPR (Monetary Policy Rate), the Loan-to-Deposit-Ratio (LDR). In a bid to address inflation, the new development makes it the second consecutive time the central bank will raise the benchmark rate in 2022 from 13.5 percent to 14 percent. While the interest rate on its intervention loans is 5 percent. All of these have backfired.
Next, there is the exchange rate stabilization, which was set between 2016 and 2019 at N305 to $1. Like all prior initiatives, the CBN’s belief that fixing the exchange rate would lessen the force of double-digit inflationary pressures failed.
Meanwhile, the main objectives of exchange rate policy in Nigeria are to preserve the value of the domestic currency, maintain a favorable external reserve position, and ensure external balance without compromising the need for internal balance and the overall goal of macroeconomic stability.
Way Forward for the CBN
It is obvious that the government’s intervention so far has not impacted the inflationary pressures that keep rising now. Without concrete and quick steps to intervene, the rising tide of the inflation rate may continue into the end of the year.
At this juncture, it is imperative for the CBN to be effectively committed to breaking the country’s mono-economic indices that are largely based on oil proceeds.
With insecurity being nipped at the bud, Nigerians should be encouraged to actively drive economic development by investing in agriculture.
Economists recommend the need for special interventions in the critical sector and especially focus on subsidizing production to reduce the burden of the rising cost of production.
There is a need for a good mix of both fiscal and monetary policies to tackle the core drivers of the inflation scourge in Nigeria.
There should be targeted financing for critical sectors like agriculture, food processing, aviation fuels, transport, and FOREX availability for manufacturing inputs.
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