Members of the Central Bank of Nigeria’s Monetary Policy Committee (MPC) have expressed worry over the country’s high inflation rate.
The officials expressed their concerns in their personal statements as contained in the communique of the last CBN MPC meeting held in July.
Nigeria’s inflation rate rose to 19.64 per cent in July, according to the National Bureau of Statistics (NBS). Driven by skyrocketed food prices, the rate hit its highest since September 2005, a 17-year surge from 18.60 per cent recorded in the previous month.
The CBN committee attributed the development to the disruptions to the global supply chain, tightening global financial conditions as several advanced economies pursue an aggressive regime of monetary policy normalization, declining global trade, and growing risks to financial stability, associated with the burgeoning global private and public debt profile.
Last month, the committee also unanimously voted to increase the benchmark interest rate from 13 per cent to 14 per cent, to address the nation’s rising inflation.
Some members of the committee, however, said the increased interest rate is not enough to tackle the country’s rising inflation.
According to the Deputy Governor, Corporate Services of the bank, Adamu Lametek, the adjustment needed to restore macroeconomic stability carries a huge burden that cannot be borne by the Central Bank or monetary policy alone.
“The structural issues at play are enormous. Those cannot be addressed by monetary policy instruments. I see the need for reform beyond the borders of monetary policy to deliver a holistic recovery in Nigeria and almost everywhere else.
“On the side of monetary policy, I am persuaded that further tightening of monetary conditions would help to address the demand factors underlying the inflationary pressures”.
Another member of the committee and a professor of economics at the University of Ibadan, Adenikinju Festus, expressed concerns about the rising inflation, adding that it remains a threat to investment and output growth.
“Inflation is lowering the real incomes of Nigerians and driving more people to poverty,” he wrote.
“Inflation is hurting many Nigerians, whose nominal wages have remained stagnant for many years. It is dragging down the values of savings, wages, and pensions for retirees. Price stability is a core function of the MPC and hence, the high level of domestic inflation is unacceptable.”
Referencing the decision to raise the interest rate in May, being the first time since September 2020, he noted that it is too optimistic to expect that the decision would reverse the inflationary trend at once.
“Apart from the lag effects expected from the transmission mechanisms from policy rates to causal factors of inflation, the underlying causes of the inflation have not abated,” he wrote.
On her part, Aishah Ahmad, a deputy governor of the apex bank, lamented how high and rising inflation presents a serious policy dilemma for the committee given the imperative to sustain the growth trajectory, the limited tools at its disposal, and the constricted fiscal environment.
She wrote: “The monetary authority must act to better anchor elevated inflation expectations of economic agents following months of rising inflation and recent multiple shocks. Interventions and continued funding of the real sector give room for tightening the monetary policy stance to better anchor inflation expectations, mitigate demand-driven inflation and ultimately preserve output gains.
“More importantly, the evolution of consumer prices in recent months and the uncertain short-term outlook present credible grounds to raise the policy rate. Finally, the persistent rise in money supply over the last couple of months signals the growing importance of demand-side factors in explaining recent inflation trends which require a prompt response by the monetary authority”.
The CBN deputy governor, however, said the response should take cognizance of the fragile output performance.
Another member of the committee, Moa Omamegbe, also noted that the rising inflation in the country constitutes a major macroeconomic challenge that is exacerbated by foreign exchange pressures. According to him, Nigeria being an import-dependent economy will have its currency further depreciated as import prices become more expensive.
“The foreign exchange challenge remains daunting and addressing this challenge should be of utmost importance. Monetary policy will thus seek to counteract the trend, support growth and guard against inflationary expectations becoming entrenched,” he wrote.
Another member, Shonubi Folashodun, also agreed that the current trajectory of inflation calls for drastic actions.
“Apart from pressure from food prices and imported inflation, the monetary phenomenon in domestic inflation has become obvious, just as expectations seem to have also taken root. With the growth in the major monetary aggregates at the end-June 2022 already surpassing the benchmark for 2022, we must take immediate action to douse the influence of the monetary aspect of inflationary pressure.
“I, therefore, encourage the Bank, guided by trends in monetary aggregates, to keep a close eye on the money supply and continue to deploy its administrative measures to manage liquidity, especially as it has shown to be a ready and effective tool in our peculiar case.”
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