Some financial experts have voiced their concerns regarding the escalating rate of inflation in the country, which surged to 31.70% in February 2024.
In an exclusive interview with Nairametrics, the experts cast doubt on the ability of the recently formed council by the president to effectively address inflation.
They called on the government to promptly establish an economic advisory council consisting of knowledgeable economists.
The experts noted that despite being composed of businessmen, the current council lacks the necessary expertise to tackle the challenges posed by the escalating inflation rate.
They pointed out that the type of inflation prevalent in Nigeria is not conducive to demand management strategies typically employed by the Central Bank of Nigeria’s monetary policy tools.
The expert highlighted that despite repeated interest rate hikes, there has been little impact on curbing the upward trend in inflation.
According to them, this underscores the need for a more comprehensive approach to address the complex factors driving inflation in the country.
Escalating inflation rate
Nairametrics reported 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%.
Comparatively, on an annual basis, February 2024’s inflation rate was 9.79% higher than the 21.91% recorded in February 2023.
Additionally, the month-on-month headline inflation rate in February 2024 reached 3.12%, an increase of 0.48% from January 2024’s rate of 2.64%.
This indicates that the pace at which average prices rose in February 2024 exceeded the rate of price increase in January 2024.
Substantial increase in the monetary policy rate
The Central Bank of Nigeria recently implemented a substantial increase in the monetary policy rate (MPR), raising it by 400 basis points to a historic 22.75%.
This marks the highest level of MPR recorded in the country, surpassing the previous rate of 18.75%, which had been maintained since the last Monetary Policy Committee (MPC) meeting held on July 24th and 25th, 2023. The 400 basis points increase represents the largest hike on record.
Additionally, the CBN elevated the Cash Reserve Ratio to 45% while keeping the liquidity ratio unchanged at 30%.
Furthermore, adjustments were made to the Asymmetric Corridor, with the upper limit raised to +200 and the lower limit to -700.
What market experts are saying:
Mr. Tajudeen Olayinka CEO, of Wyoming Capital and Partners speaking to Nairmetrics exclusively, said the necessity for an adjustment program to reset the economy and address underlying issues contributing to macroeconomic imbalances, coupled with the complexities involved in managing such a program, are key factors driving the spiraling out-of-control inflation.
According to him, the economy appears resistant to adjustment efforts. Compounding this challenge is the absence of an experienced economic team advising the president.
The recently formed economic advisory council, comprising individuals like Aliko Dangote, Femi Otedola, Tony Elumelu, Abdulsamad Rabiu, lacks the depth of expertise needed for effective navigation of the economic terrain. This assembly has been likened to a comedy of the absurd, as these members are predominantly businessmen, not economic experts capable of addressing intricate economic challenges.
Olayinka noted that in situations where an economy faces a Balance of Payments crisis, expertise in the field becomes indispensable for recovery.
He said that the current composition of the advisory council, though well-intentioned, falls short of this requirement.
He said that the government’s noble intentions to implement crucial economic adjustments are hindered by the utilization of a mismatched team.
- “The government should set up a team of experts. Once an economy enters the territory of the Balance of Payments crisis, it is always difficult to come out of it without using experts in that field.
- The people assembled by the president are businessmen, they are not economic experts who can navigate the difficult terrain,” he said.
He said that many of the underlying issues stem from the supply side of the economy, further complicating the situation.
David Adonri, Managing Director, Highcap Securities also speaking with Nairametrics said that the inflationary challenges faced by Nigeria are not effectively addressed by demand management strategies typically employed through CBN monetary policy tools.
According to him, fiscal policy interventions are better suited to tackle the country’s cost-push inflation. Creating favorable conditions for domestic production and encouraging investment in engineering infrastructure are crucial steps toward sustaining the growth of light industries and mitigating Nigeria’s rapidly rising inflation.
- “The kind of inflation we have in Nigeria is not susceptible to demand management strategies which CBN monetary policy tools epitomize.
- Fiscal policy interventions are best suited to curbing the country’s inflation which is cost push. Creating an enabling environment for domestic production and investment in engineering infrastructure to sustain the productive momentum of light industries is the remedy to arresting Nigeria’s galloping inflation,” he said.
Mr. Olatunde Amolegbe, the Managing Director of Arthur Steven Asset Management Limited and former President of the Chartered Institute of Stockbrokers (CIS) said it’s important to recognize that there is often a delay between implementing policy actions and observing their intended consequences.
Amolegbe noted that this lag time may account for the current situation the country is experiencing adding that the government has undertaken various fiscal and monetary measures aimed at addressing both structural and monetary issues affecting inflation rates.
- “Efforts have been made to empower states with various palliatives to reduce food inflation, along with intensified initiatives to stabilize the foreign exchange market.
- Additionally, the Central Bank of Nigeria (CBN) has implemented monetary tightening measures to reduce system liquidity.
- The recent inflationary trends observed in February may reflect the momentum from preceding periods, indicating that the impact of recent policies may not yet be fully realized.
- It’s likely that the effectiveness of these policies will become clearer with the release of March 2024 figures,” he said.
Amolegbe said insecurity poses a significant challenge, particularly in its impact on food production and transportation, key contributors to escalating inflation.
- “Stabilizing the exchange rate requires efforts to improve the supply side while reducing demand. Increasing crude production and promoting local refining could help address this issue.
- I think we are generally on track policy-wise it’s just that we need to allow time for the impacts to be felt fully,” he said.