Inflation: CBN urged to halt monetary tightening policy

The Centre for the Promotion of Private Enterprise (CPPE) on Thursday advised that the deployment of monetary tightening tools should be put on pause by the Central Bank of Nigeria (CBN).

A statement signed by Muda Yusuf, director of CPPE, noted that the Nigerian economy is not a credit driven economy which is why the tightening outcomes have been inconsequential as a tool to tame inflation.

Nigeria’s inflation rate rose for the 10th consecutive month in November to 21.47 per cent from 21.09 per cent recorded a month earlier amid a continuing increase in food and energy prices, according to the National Bureau of Statistics.

The statistics office said the prices of goods and services, measured by the Consumer Price Index, increased by 21.47 per cent in November 2022 compared to the rate in November 2021.

The figure is 6.07 per cent points higher than the rate recorded in November 2021.

The CPPE in its reaction noted that like in many other parts of the world, the phenomenon of mounting inflationary pressures in the Nigerian economy is yet to abate as it remains a major cause for concern for stakeholders in the Nigerian economy.

“Over the last one year, the Nigeria inflation story has been a depressing one as reflected in the dynamics of all key price metrics,” the CPPE said.

“The key inflation drivers have not changed over the last few years. They include the following: the depreciating exchange rate, rising transportation costs, logistics challenges, forex market illiquidity, hike in diesel cost, climate change, insecurity ravaging farming communities and structural constraints to economic activities. Fiscal deficit financing by the CBN is also a significant factor fueling inflation through high liquidity injection into the economy.”

Policy Intervention

Mr Yusuf said that taming inflation demands urgent government intervention to fix supply side constraints in the economy. It also involves tackling production and productivity constraints, fixing the dysfunctional forex policy, and reducing liquidity injection through ways and means funding of fiscal deficit.

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“Meanwhile, the CBN should resist the temptation of further monetary policy tightening,” the statement said.

The CPPE said that as at October 2022, credit to the private sector as a percentage of GDP was 22.7% in Nigeria. It added that the percentages for other countries in 2020 according to the World Bank were 32% in Kenya; 96% in Morocco; 193% in Japan; 143% in UK; 216% in the United States; and 39% was average for sub-Sahara Africa.

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“This underscores the need for variabilities in policy responses,” it said, adding that inflation had been spiking despite the serial monetary tightening decisions.

“Sustained tightening penalizes entrepreneurs [especially the real sector], increases cost of credit with heightened prospects of a backlash on growth,” the statement said.

“Inflation restraining strategies should accordingly focus on productivity boosting supply side factors and reduction in ways and means funding of deficit.”