Nigeria is battling one of its worst economic crises in recent times, with rising living and energy costs, sparked by the twin policies of the government’s removal of petrol subsidy and unification of the foreign exchange winders in May 2023.

The country’s inflation reached an all-time high in June, hitting 34.19 %, according to the latest data from the National Bureau of State Statistics (NBS).

Food inflation also rose in June 2024 to 40.87% year-on-year compared to 40.66% recorded in May 2024, 15.62% higher than the 25.25% recorded in June 2023.

The President Bola Tinubu administration alongside governors in the 36 states has since rolled out a number of palliative measures but Nigerians continue to be lamentably hurt by the severe impact of inflation as the prices of food commodities and basic products multiply uncontrollably.

The committee also retained the CRR  and Liquidity Ratio of merchant banks at 14 per cent and 30 per cent, respectively.

Cardoso said that the meeting, which had 11 members of the MPC present, reviewed recent economic and financial developments, and assessed risks to the outlook.

According to him, the committee was mindful of the effect of rising prices on households and businesses, and slso expressed its resolve to take necessary measures to bring inflation under control.

“It re-emphasised its commitment to the CBN’s price stability mandate and remained optimistic that despite the June uptick in headline inflation, prices are expected to moderate in the near term.

“This is hinged on monetary policy gaining further traction, in addition to recent measures by the fiscal authority to address food inflation.

“In its consideration, the committee noted the persistence of food inflation, which continues to undermine price stability.

“It was observed that while monetary policy has been moderating aggregate demand, rising food and energy costs continue to exert upward pressure on price development,” he said.

The governor said that the prevailing insecurity in food producing areas and high cost of transportation of farm produce were also contributing to this trend.

According to the CBN governor, members were, therefore, not oblivious to the urgent benefit of addressing these challenges as it will offer a sustainable solution to the persistent pressure on food prices.

Cardoso explains further

Cardoso said that the MPC also had in consideration the increasing activities of middlemen who often finance smallholder farmers, aggregate, hoard, and move farm produce across the border to neighbouring countries.

He said that the committee suggested the need to put in check such activities to address the food supply deficit in the Nigerian market to moderate food prices.

“The MPC, therefore, resolved to sustain collaboration with the fiscal authority to ensure that inflationary pressure is subdued.

“In addition, the committee expressed optimism with the recent stop gap measures by the Federal Government to bridge the food supply deficit.

“In particular, the 150-day duty free import window for food commodities will moderate domestic food prices.

“It is noteworthy that these measures will not lead to direct injection of liquidity into the economy as to cause further inflation,” he said.

He said that the measure was a welcome development and might prove effective in the short run.

He, however, advised that it was expedient that it should be implemented with a defined exit strategy to avert a possible rollback of the recent gains in domestic food production.

“To support these initiatives, the CBN is already engaging development finance
Institutions like the Bank of Industry (BOI) to ensure adequate support to industries with a focus on Small and Medium Scale Enterprises (SMEs),” he said.

Cardoso said that the committee also took cognisance of developments in the foreign exchange market.

“The MPC noted the narrowing spread between the various foreign exchange segments of the market, an indication of price discovery and improved market efficiency, thus reducing opportunities for arbitrage and speculation.

“The committee noted that the increase in the level of external reserves would further build confidence for a more stable exchange rate.

“It, thus, urge the apex bank to explore available avenues to improve inflows, especially through diaspora remittances,” he added.

He said that members of the committee also noted the effort of the Federal Government and private sector towards improving domestic refining capacity.

“This is expected to reduce foreign exchange,  currently being expended on the importation of refined petroleum products,” he said.

What is MPR

Monetary policy is the use of monetary instruments under the control of Central Banks to regulate such matters as interest rates, credit, and money supply in such a manner as to achieve a stated economic policy.

How it works

Kalu Aja, a Finance expert breaks it down. He says “Let us assume the Central Bank determines by using forecasts that a recession could happen in the economy. A recession of the course of six months of negative GDP growth. GDP is a measure of output generated in an economy. Thus, negative growth connotes that output is stalling, just like a car running low on fuel. To keep the vehicle moving, you can add more fuel; in the case of the economy, the fuel is spending cold cash. GDP is a measure of Government spending, Investments, Consumption, and net exports, see Diagram 1. Thus, the government can “juice” the GDP growth by spending to generate employment and commerce.”