Naira Depreciation, Inflationary Pressure, To Top Agenda As CBN’s MPC Meeting Begins On Monday

As the Monetary Policy Committee of the Central Bank of Nigeria begins its meeting on Monday, the persistent increase in inflation rate which is affecting the price stability mandate of the apex bank is expected to top the agenda of the committee.

Nigeria’s inflation rose in June to its highest level in more than five years, fueled by rising prices of food and the high cost of diesel.

The inflation rate surged to 18.60 per cent in June, up from 17.71 percent in the previous month, the National Bureau of Statistics (NBS) said on Friday.

The new rate is the highest the nation has recorded since January 2017.

The NBS said last Friday that the rate is 0.84 percent points higher compared to the rate recorded in June 2021, which is 17.75 percent.

Inflation globally, remains a major concern following the Russia Ukraine war which has affected energy prices and caused disruption to supply chains.

After holding the Monetary Policy Rate constant at 11.5 per cent for about two and a half years, members of the MPC at their last meeting held in May raised the benchmark interest rate by 150 basis points to 13 per cent in response to global inflationary pressures, which had continued to hurt economies around the world.

The MPR is the rate at which the apex bank lends to commercial banks and often determines the cost of funds in the economy.

The Central Bank Governor, Mr Godwin Emefiele, had during that meeting pointed out that the decision to raise interest rate was the last resort and a difficult one for the MPC.

The CBN had adopted a contractionary monetary policy stance in view of the aggressive rise in inflation in recent times, which had led to high food and commodity prices in the country.

While the CBN’s action was aimed at curbing inflation, on the one hand, and supporting growth of the economy, on the other, the MPC was was of the view that a drastic measure such as raising the benchmark lending rate was required to reduce monetary expansion in order to tame inflation.

During that meeting, Emefiele had assured that though inflation was expected to maintain an aggressive acceleration in the coming months, the central bank would not hesitate to return to its accommodative stance whenever it saw a reduction in the headline index.

Emefiele said, “The concerns about the global rise in inflation and price levels; you all would have seen that the price of crude quite unexpectedly has been above $100 per barrel. In fact, Nigeria’s Bonny light yesterday, when we started the meeting, was about $116 per barrel.

“What this means is that the standard pricing indicator; yes, whereas crude prices have gone up per barrel, at the same time the cost of refining and ultimate pump price at the station would naturally have gone up.

“This is a global phenomenon and I was watching the CNN a few days ago and one of the analysts was talking about an incredible distortion to financial markets in the United States, and I said, yes, we are all welcome to a situation where inflation is rising to unprecedented levels in the US and other economies, growth is also coming down

“And if you must tackle inflation, prices, and at the same time you want growth, then you know that you are faced with some compelling dilemma as to what to do.”

Data from the NBS showed that in June 2022, inflation on a year-on-year basis was highest in Bauchi (21.99 percent), Kogi (21.37 percent), Ebonyi (20.73 percent) while Adamawa (16.14 percent), Sokoto (16.31 percent) and Jigawa (16.37 percent) recorded the slowest rise in headline year-on-year inflation.

On a month-on-month basis, however, June 2022, recorded the highest increases in Kogi (2.69 percent), Ondo (2.65 percent), and Kaduna (2.61 percent), while Adamawa (-0.26 percent), Abuja (-.0.03 percent) and Sokoto (0.79 percent) recorded the slowest rise on month-on-month inflation.

Apart from inflation, the depreciation of the Naira in the foreign exchange market is also be an area of concern for the committee members.

Naira weakened further last Friday, falling 1.34 per cent against the United States dollar to its lowest known level ever.

According to data published by FMDQ, where forex is officially traded, naira which opened trading at N426.63 closed at N430.33 to a dollar on Friday.

This implies a N5.71 or 1.34 per cent devaluation from N424.62 posted in the previous market session on Thursday.

The domestic currency hit an intraday high of N414.00 and touched a low of N444.00 before settling at N430.33 per $1 at the close of business on Friday.

This is the weakest rate the naira has exchanged this year since it closed at N430.00 to a dollar last Tuesday.

Within the first half of the year, the currency has been trading between the range of N417 and N430 to a dollar before settling at N430.33 at the close of sales Friday, the last business day of this week.

At the parallel market, dealers exchanged dollars at N615.00 and sold at N620 to a dollar on Friday.

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