The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has said that persistent inflation could prolong monetary tightening measures and hinder the nation’s growth potential.
He said in the foreword of the inaugural edition of the CBN’s Macroeconomic Outlook for Nigeria, recently released by the apex bank.
Based on this foreword, the central bank governor suggests that the apex bank could continue with its hawkish monetary policy, which is underpinned by higher interest rates, if inflation continues to rise.
This outlook containing this foreword comes a few days after the National Bureau of Statistics (NBS) released the CPI report, which indicates that the inflation rate ticked higher for the month of June and rose month on month for the first time since February 2024.
Risks to Nigeria’s positive domestic outlook
Cardoso further highlighted several risks to Nigeria’s positive domestic outlook. He noted that security challenges, supply-side shocks, and global geoeconomic fragmentation might exacerbate inflationary pressures.
These factors, coupled with long-standing structural imbalances, could necessitate extended monetary tightening, thereby depressing growth potential.
He said: “The positive domestic outlook is, however, subject to certain risks, especially, as security challenges, supply-side shocks, and global geoeconomic fragmentation could aggravate inflationary pressures.
“Elevated inflation, due to long-standing structural imbalances, could extend monetary tightening and depress growth potentials.
“Oil theft, pipeline vandalism, and an unlikely decline in crude oil price could also constrain fiscal space, hamper foreign exchange receipts, lower accretion to the external reserves, heighten pressure in the foreign exchange market and undermine domestic stability.”
Nigeria’s economy remains resilient
Despite existing challenges, the outlook for Nigeria’s economy remains broadly resilient, with continued growth, expected moderation of inflation, and greater exchange rate stability, according to the CBN governor.
He noted that improvements in domestic production and refining capacity of crude oil, along with anticipated rises in crude oil prices, are expected to boost growth from 2.74% in 2023 to 3.38% in 2024.
Although inflation remains elevated, it is projected to moderate to 21.40% within a range of 19.84 to 25.35%, down from 28.92%in December 2023, as the transition to an inflation-targeting lite framework and a stringent monetary policy stance effectively anchor expectations.
Cardoso also said that liquidity conditions are expected to remain tight, with the yield curve shifting upward and attracting capital inflows.
Mitigating the risks
To address potential risks and existing imbalances, Cardoso stressed the importance of intensifying monetary tightening to curb inflation risks, sustaining reforms to strengthen the foreign exchange market, and tackling security issues around the food belt and oil installations.
Also, he called for increased and effective coordination among all government policy organs to foster policy harmonization and ensure robust synchronization of socio-economic measures. This, he asserted, would bolster domestic prosperity and uphold economic governance under a shared vision.
Explaining the rationale behind the outlook, Cardoso emphasized that it aims to assess recent developments and project short-term prospects for the Nigerian economy.
He pointed out that previous economic narratives were largely driven by external institutions and individual efforts, often lacking complete information on critical sectors, socio-political developments, and policy perspectives that shape economic outcomes.
What you should know
Nigeria’s month-on-month headline inflation rate rose for the first time since February 2024, according to the latest Consumer Price Index (CPI) report for June 2024 released by the National Bureau of Statistics (NBS).
The CPI, which measures the average change over time in the prices of goods and services consumed by people for day-to-day living, recorded an increase from 2.14% in May 2024 to 2.31% in June 2024.
The Monetary Policy Committee (MPC) is expected to meet for the fourth time this year next week on July 22nd and 23rd, 2024.
With year-on-year headline inflation now at 34.19%, another hike in the monetary policy rate (MPR) is expected this month.
