Globally, this is not the best of times for any economy, particularly Nigeria. The battle against COVID-19 pandemic had barely settled and economies began to struggle to shake off the impact when Russia invaded Ukraine, disrupting world composure. Since February 2022 the world supply chain has been disrupted and prices of goods and services have risen astronomically.
Nigeria’s situation is even more complicated as it is challenged locally, and exogenously – insecurity has affected food production, and the Russian- Ukraine war has crippled the global food supply chain.
The Central Bank of Nigeria (CBN) hitherto reluctant,believing in the efficacy of its monetary tools has yielded to global reality and in two quick successions, after almost two and half years, jerked up the interest rate from 11.5 to 13 percent in May, and 14 percent in July. Even at the height of the COVID-19 pandemic the Bank held on for years deploying policies to sustain the economy.
Expectedly, the Bank’s mandate as provided for in the BOFIA Act 2020 (as amended) has price stability as one of its core responsibilities being an ingredient for sustainable growth. It is also charged with the responsibility of achieving a stable financial system and an efficient payments system. Therefore, whenever there is inflation in the land as it is currently, the CBN is always home to confront it. The Central Bank of Nigeria’s stance towards confronting inflation dates back to 2014 when its current Governor assumed office. Interest rate then was influenced by domestic liquidity conditions and global economic factors such as sharp drop in international crude oil prices, tapering of quantitative easing by the United States Federal Reserves Bank, and dwindling foreign reserves.
However, global tensions, and economic recession of 2016 most importantly, provided Nigeria with some lessons and steps needed to be taken to improve the wealth base of the economy. Consumer Price Index (CPI) in Nigeria increased to 455.40 points in June 2022 from 447.20 points in May of 2022. CPI in Nigeria averaged 127.55 points from 1995 until 2022, reaching an all-time high of 455.40 points in June of2022.
Consumer Price Index is an important economic metric that measures the average change in prices (inflation) paid by consumers over a period for goods and services. The Nigeria Bureau of Statistics (NBS) posted 18.6 percent inflation rate for the month of June 2022 compared to 17.75 percent in the corresponding month 2021, and ever since inflation has taken flight up north.
Prior to Russian invasion of Ukraine, a major distributor in world food supply chain, Nigeria had been battling galloping inflation mainly caused by internal insecurity – such as banditry, kidnapping, crude oil theft, and sabotage of oil pipelines etc., in addition to obvious structural defects, present, and past administrations in the country have failed to address. Unfortunately, Nigerians are blaming the CBN for the economic hardship being experienced in the land.
Obvious fiscal deficit, and government inability to arrest insecurity and put in place structures to aid economic development are palpable reason why many felt the CBN’s interventions are defective. Inflation, from the ongoing, has apparently blighted the gains of measures taken by the CBN to bolster the Naira through various programmes and policies in key sectors aimed at diversifying the economy. Measures taken were also to open other sources of revenue to the country.
However, the fate of the Naira, because of rising inflation has made borrowing become not only expensive but unattractive.Inflation has also engendered general increase in prices of items and other essential commodities making existence more challenging. These, and many more global happenings, may have prompted the CBN’s Monetary Policy Committee at its last meeting to jerk up Monetary Policy Rate (MPR) by 100 basis points (from 13 – 14 percent). Nigerians eagerly hope to see how effective the decision would be.