The Central Bank of Nigeria (CBN) claims its current reforms will control increasing inflation and eliminate anomalies in the foreign exchange market.
On Tuesday in Abuja, CBN Governor Yemi Cardoso said this while presenting the statement from the apex bank’s Monetary Policy Committee (MPC).
Cardoso had announced the committee’s decision to adopt aggressive inflation-targeting by increasing the benchmark interest rate by 400 basis points from 18.75 per cent to 22.75 per cent.
According to him, the argument leaned convincingly in favour of a significant policy rate hike to force down inflation substantially
He said that the MPC deliberated extensively on various distortions in the foreign exchange market, including the activities of speculators, putting upward pressure on the exchange rate with “high pass-through” to inflation.
Cardoso said that the MPC also identified non-monetary factors driving inflation, like the persisting insecurity and infrastructure deficits.
“It notes the role of fiscal policy in addressing these shortfalls, while reiterating the commitment of monetary policy support.
” In this regard, the committee applauded fiscal policy initiatives towards reducing the cost of living for ordinary Nigerians, including the ongoing efforts to improve food supply,” he said.
He said that headline inflation rose to 29.90 per cent in January from 28.92 per cent in December 2023.
According to him, food inflation increased to 35.41 per cent from 33.93 per cent, while core inflation rose to 23.59 per cent from 23.07 per cent.
” The major factors driving inflationary pressure remains exchange rate pass-through, rising cost of energy, high fiscal deficits, and lingering security challenges in major food-producing areas.
“In addition, global factors such as tight financial conditions and trade disruptions from ongoing geo-political tensions, remain significant upside risks to the outlook for domestic inflation.
“Staff forecasts, therefore, indicate that inflation will remain on an upward trajectory in the near term before commencing a descent,” he said
He said that members of the MPC were convinced that the ongoing reforms in the foreign exchange market would yield the desired outcome in the short to medium term.
He listed some of the reforms to include the unification of the foreign exchange market and promotion of a willing buyer willing seller market.
Others are removal of all limits on margins for International Money Transfer Operators (IMTO) remittances, introduction of a two-way quote system and the broad reforms in
the Bureau De Change (BDC) segment of the market.
“The Committee reviewed the key financial indicators of the banking system and noted that the system remained stable.
“To further ensure the stability of the banking system, the MPC called on the CBN to increase system buffers by recapitalising the banks to improve resilience against potential risks.
“Members further enjoined the CBN to strengthen surveillance and compliance regarding its earlier guidance on the application of foreign exchange revaluation gains,” he said.