Inflation: CBN should resist the temptation to further tighten monetary policy- CPPE

The Director of the Center for the Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf, has called on the Central Bank of Nigeria (CBN) to resist the temptation to further tighten monetary policy.

Yusuf said this while reacting to the National Statistics Office. [NBS] report on general inflation that accelerated to 21.47% in November compared to 21.09% in October.

monetary adjustment; Furthermore, he advised the CBN to suspend the deployment. of monetary adjustment tools.

  • Yusuf said: “The Nigerian economy is not a credit-driven economy, so the results of tightening have been inconsequential as a tool to control inflation.
  • As of October 2022, credit to the private sector as a percentage of GDP was 22.7% in Nigeria. The percentages for other countries in 2020 according to the world bank were 32% in Kenya; 96% in Morocco; 193% in Japan; 143% in the UK; 216% in the United States; and 39% average for sub-Saharan Africa. This underscores the need for variability in policy responses.
  • Inflation had skyrocketed despite serial monetary tightening.
  • Sustained tightening penalizes entrepreneurs [especially the real sector], and the cost of credit increases with greater prospects of a negative reaction to growth. Consequently, inflation containment strategies should focus on supply-side factors that boost productivity and on reducing the ways and means of deficit financing.

key drivers of inflation unchanged: Yusuf noted that over the last year, the inflation story in Nigeria has been dismal, as reflected in the dynamics of all key price metrics.

He said that the key drivers of inflation have not changed in recent years and that, according to him, they include the depreciation of the exchange rate, the increase in transportation costs, logistical challenges, the illiquidity of the foreign exchange market, the rising cost of diesel, climate change, insecurity plaguing farming communities, and structural constraints. to economic activities.

Yusuf added that the financing of the fiscal deficit by the CBN is also an important factor that fuels inflation through a high injection of liquidity in the economy.

  • “Reduced monetary easing in advanced economies is also driving imported inflation and exchange rate depreciation. The consequences of rising inflation include the following: erosion of citizens’ purchasing power as real incomes collapse, increased poverty, increased production costs negatively impacting profitability, reduced shareholder value at many companies, decreased investor confidence and decreased manufacturing capacity utilization.
  • Controlling inflation requires urgent government intervention to correct supply constraints in the economy. Address production and productivity constraints, fix dysfunctional foreign exchange policy, and reduce liquidity injection through ways and means of fiscal deficit financing,” he said.

In case you missed it: According to the National Statistics Office [NBS], general inflation accelerated to 21.47% in November compared to 21.09% in October. On a month-on-month basis, there increased to 1.39% in November from 1.24% in October 2022.

Food inflation rose to 24.13% from 23.72% in October. In month-on-month terms, food inflation grew by 1.4% compared to 1.23% in October. Core inflation similarly shot up to 18.24% from 17.76% in October.

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