Nigeria’s high inflation would further reduce the value of the Naira as imported products become more expensive.
This was revealed in the personal statement of Dr Mo Omamegbe, a member of the CBN’s Monetary Policy Committee as seen in the communique of the meeting held on Monday 18th and Tuesday 19th July 2022.
Despite multiple interest rate hikes by the CBN, inflation continues to rise. Nigeria’s current inflation rate for July 2022 rose to a 17-year high of 19.64% from 18.6% recorded in the previous month of June 2022.
What the CBN is saying
Dr. Omamegbe that a rise in prices would increase the exchange rate crises in the Nigerian economy.
“The rising inflation in the country constitutes a major macroeconomic challenge which is exacerbated by foreign exchange pressures. We are an import-dependent economy.
“A higher inflation rate will further depreciate the value of the Naira as import prices become more expensive. The foreign exchange challenge remains daunting and addressing this challenge should be of utmost importance,” he said.
Professor Adeola Festus Adenikinju, another member of the MPC said that “Unexpectedly the naira appreciated in the I&E window at a time when currencies across the globe are depreciating against a strong dollar. It is also unexpected at a time the huge demand for dollars in the commercial banks outstripped supply.”
What you should know
- The central bank raised the interest rate to 14% in July 2022 and the savings deposit interest rate increased from 1.4% to 4.2% to curb rising inflationary pressure as well as encourage FX inflow into the economy.
- Nonetheless, the exchange rate continues to come under pressure as the Naira crashes to N705/$ on the black market.
- Nigeria’s gross domestic product (GDP) grew by 3.54% year-on-year in real terms in the second quarter of 2022, an improvement compared to the 3.11% growth recorded in the previous quarter
- Although Nigeria has a positive economic growth, a report from Financial Derivatives suggests that fear of dollar shortage has driven manufacturers to front-load their inventory requirements, creating the illusion of economic growth in Nigeria.
