Muhammad Sani Abduallahi, deputy governor of the Economic Policy Directorate of the Central Bank of Nigeria (CBN), has predicted that escalated energy costs, fluctuation in the exchange rate, and insecurity are major reasons Nigeria’s inflation may soar to 32.63% in March.
He shared insights into Nigeria’s economic forecasts, presenting an expected increase in the country’s inflation rate at the CITI-CEEMA Macro Conference held on March 20, 2024, in London.
According to the document, “Headline inflation is expected to rise to 32.63% in March 2024, due to:
“High Energy Prices: Lingering impact of fuel subsidy removal, increasing the cost of household utilities, transportation and production costs.
“Exchange Rate Passthrough: Depreciation of the naira resulting from the market-determined exchange rate policy, is likely to have a passthrough effect on domestic prices.
Others are: “Insecurity: Impact of insecurity on food production, the winding down of the harvest season, and high cost of farm input could negatively impact food prices.” The CBN, however, anticipates a turnaround, with inflation expected to start its downward trajectory beginning in May 2024.
This optimism is based on a series of strategic measures to tackle rising inflation. Among these are the adoption of an Inflation Targeting Framework, deploying more active communication strategies, and shifting towards a tighter monetary policy stance.
Notably, the Monetary Policy Rate (MPR) has seen an increase of 400 basis points, reaching 22.75%, and the Cash Reserve Ratio (CRR) has been adjusted to 45% from the prior 32.5%. Furthermore, adjustments have been made to the asymmetric corridor around the MPR to +100/-700 basis points from +100/-300 basis points, signaling a robust stance on managing inflation expectations.
Recall that in February 2024, Nigeria’s headline inflation rate rose to 31.70%, up from 29.90% in January 2024, marking an increase of 1.80%.
The inflation rate defied the monetary policy rate (MPR), which was hiked by 400 basis points to an unprecedented 22.75%.
A member of Nigeria’s Monetary Policy Committee (MPC), Murtala Sabo Sagagi, recently said that the underlying structural issues within the Nigerian economy significantly hinder the traditional monetary policy tools from achieving desired outcomes on inflation control.
Sagagi emphasized that without addressing key issues such as insecurity, food shortages, and a comprehensive roadmap for economic and social rejuvenation, any monetary policy adjustments would have a minimal impact on inflation rates.
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