The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, has indicated that persistent inflation could extend monetary tightening measures, potentially hindering Nigeria’s growth potential.
In the foreword of the inaugural edition of the CBN’s Macroeconomic Outlook for Nigeria, Cardoso suggests the apex bank might continue with a hawkish monetary policy, underpinned by higher interest rates, if inflation persists.
Cardoso’s comments come shortly after the National Bureau of Statistics (NBS) reported a rise in the inflation rate for June, marking the first month-on-month increase since February 2024. He highlighted several risks to Nigeria’s positive domestic outlook, including security challenges, supply-side shocks, and global geoeconomic fragmentation, which could exacerbate inflationary pressures.
He stated that the positive domestic outlook is 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. Cardoso pointed out that issues such as oil theft, pipeline vandalism, and potential declines in crude oil prices could constrain fiscal space, reduce foreign exchange receipts, and heighten pressures in the foreign exchange market, thus undermining domestic stability.
Despite the challenges, Cardoso noted that Nigeria’s economy remains broadly resilient. Improvements in domestic production and refining capacity of crude oil, along with expected increases in crude oil prices, are projected to boost growth from 2.74% in 2023 to 3.38% in 2024. Inflation is expected to moderate to 21.40%, down from 28.92% in December 2023, as the CBN transitions to an inflation-targeting lite framework and maintains a stringent monetary policy stance.
Liquidity conditions are expected to remain tight, with the yield curve shifting upward to attract capital inflows. To address potential risks, Cardoso stressed the importance of intensifying monetary tightening to curb inflation, sustaining reforms to strengthen the foreign exchange market, and tackling security issues around the food belt and oil installations.
He also called for increased coordination among government policy organs to ensure robust synchronization of socio-economic measures, fostering domestic prosperity and upholding economic governance under a shared vision. Cardoso explained that the CBN’s Macroeconomic Outlook aims to assess recent developments and project short-term prospects for the Nigerian economy, filling gaps left by previous external narratives that lacked comprehensive information on critical sectors and policy perspectives.
The Monetary Policy Committee (MPC) is expected to meet 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 anticipated this month.
