X-Raying CBN’s Inflation Targeting Interventions Under Emefiele

In recent times, Nigerians have seen an uptick in inflationary pressures exacerbated by various factors such as the war between Russia and Ukraine which has led to global supply chain disruptions, insecurity which has made it difficult for farmers to access their farmlands and, tightening global financial conditions as several advanced economies pursue an aggressive regime of monetary policy normalization.

Also, the declining global trade, growing risks to financial stability, associated with the burgeoning global private and public debt profile among others have fueled inflationary pressures.

No doubt, these issues have resulted in an unprecedented rise and widespread global inflation which is exacerbating downward pressure on the fragile recovery of the global economy.

In addition, lingering headwinds associated with the COVID-19 pandemic are constraining the smooth functioning of the global supply chain.

The rising risk of tightening global financial conditions, implies that developing economies now face the risk of constrained access to global capital which would further depress growth in this group of economies.

This is expected to result in increased financial vulnerabilities due to the huge volume of corporate and public debt accumulated in the wake of the sharp downturn driven by the COVID-19 lockdown.

Confronted with these heightened macroeconomic uncertainties, the Central Bank of Nigeria raised the benchmark lending rate to 14 per cent to tackle the rising inflation in the country.

Before now, the MPC had in May after holding the Monetary Policy Rate constant at 11.5 per cent for about two and a half years, 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.

Nigeria has been experiencing persisting uptick in headline inflation (year-on-year) which rose to 18.60 per cent in June 2022 from 17.71 per cent in May 2022, an 89-basis point increase in just one month.

This continued rise in inflation was driven by increases in both the core and food components to 15.75 and 20.60 per cent in June 2022.

The considerable rise in core inflation was induced largely from the rising cost of production due to high energy prices associated with the persistent disruptions to power supply, hike in electricity tariff, continued scarcity of Premium Motor Spirit, and rising price of Automotive Gas Oil.

The increase in the food component was, however, driven by shocks to food prices associated with continued insecurity in food producing areas and along major access routes across the country; the continued impact of the war in Ukraine on the supply of fertilizer inputs, wheat and other grains; exchange rate pressures; and the impact of monetary policy normalization on capital flows away from emerging markets.

To arrest this situation, the CBN has implemented some measures aimed at maintaining price stability in line with its mandate. Analysts have also expressed confidence in the Bank’s sustained intervention programmes, noting that inflation is expected to abate as food supply improves and the fiscal authority sustain its efforts to tame the legacy structural challenges which put upward pressure on domestic price levels.

The analysts urged the fiscal authority to expand and sustain its support for all the recently deployed stimuli to the real sector of the economy. The apex bank is currently intervening in various sectors of the economy in line with its development functions to stimulate the economy and stabilize prices. Some of these intervention programmes are:

Disbursement Of Over N1.7trn To Farmers

In line with its developmental function, which is distinct from its primary mandate of price stability, the CBN established the Anchor Borrowers’ Programme which was launched by President Muhammadu Buhari in 2015.

The programme aimed to create a linkage between anchor companies involved in the processing and smallholder farmers of the required key agricultural commodities.

The thrust of the ABP is the provision of farm inputs in kind and cash to smallholder farmers to boost production of farm commodities which states have comparative advantage to produce.

Some of these commodities are cereals namely rice, maize, wheat, cotton, roots and tubers namely cassava, potatoes, yam, ginger, tomato, poultry, oil palm, fish, sugarcane among others,

Between May and June 2022, under the Anchor Borrowers’ Programme (ABP), the CBN has released the sum of N3.62bn, as disbursements to 12 projects for the cultivation of rice, wheat, and maize, bringing the cumulative disbursement under the Programme to N1.01trn, to over 4.21 million smallholder farmers cultivating 21 commodities across the country.

Also, the CBN also disbursed N3.72bn to finance three large-scale agricultural projects under the Commercial Agriculture Credit Scheme (CACS). These disbursements brought the cumulative disbursements under this Scheme to N744.32 billion for 678 projects in agro-production and agro-processing.

This brings the total disbursement of the CBN to farmers under the ABP and CACS to over N1.7trn.

The apex bank’s intervention has also helped in the resuscitation of moribund sectors of the economy in line with the present administration’s agenda to diversify the economy from oil as well as preserve foreign exchange.

The CBN governor’s efforts towards food sufficiency especially in rice production is being tipped to ensure price stability thereby causing ripples effects in the economy.

Over N2.183trn Real Sector Projects Financing

As part of its effort to support the manufacturing sector, the CBN disbursed the sum of N113.08bn to 19 new projects under the Real Sector Facility. The funds were utilized for both greenfield and brownfield projects under the COVID-19 Intervention for the Manufacturing Sector (CIMS) and the Real Sector Support Facility from Differentiated Cash Reserve Requirement (RSSF-DCRR).

Figures obtained from the CBN showed that the cumulative disbursements under the Real Sector Facility currently stands at N2.183trn for the financing of 414 real sector projects across the country.

Furthermore, under the 100 for 100 Policy on Production and Productivity, the Bank has released N9.98bn for five projects, bringing the cumulative disbursements under the intervention to N68.13bn for 48 projects, comprising 26 in manufacturing, 17 in agriculture, three in healthcare and two in the services sector.

In the healthcare sector, the Bank disbursed N4.44bn to three healthcare projects under the Healthcare Sector Intervention Facility (HSIF), bringing the cumulative disbursements to N133.42bn for 129 projects, comprising 76 hospitals, 32 pharmaceuticals and 21 other healthcare services.

To further expand the nation’s non-oil export basket under the Export Facilitation Initiative (EFI), the Bank released the sum of N36bn for five projects in domestic production and value addition of cocoa and sesame seeds towards improving non-oil foreign currency revenue.

Over N304.81bn Disbursed To Stabilize Electricity Sector
To improve electricity supply in order to lower the overall cost of production in the real sector, the Bank also intervened in the power sector to facilitate the deployment of enabling infrastructure. Summarily, the sum of N2.53bn was disbursed to Distribution Companies for their Operational Expenditure and Capital Expenditure, under the Nigeria Electricity Market Stabilization Facility – Phase 2. Cumulative disbursement under the NEMSF-2 currently stands at N254.46bn. Under the National Mass Metering Programme (NMMP), the Bank disbursed N47.82bn for the procurement and installation of 865,956 meters across the country.

Inflation Outlook
At its meeting on Tuesday, members of the MPC noted the continued effort by both the monetary and fiscal authorities to dampen price pressures and sustain the recovery of output growth.

In addition, the Committee assessed the continued impact of rising insecurity, the rising cost of Automotive Gas Oil (AGO), and the persisting upward pressure on other energy prices on the general price level.

The current upsurge in price levels remains a primary concern to monetary policy as the CBN focused on the optimal policy approach required to address this development while protecting the fragile recovery.

Speaking on the inflationary pressures, the CBN Governor, Mr Godwin Emefiele said that inflationary pressure was being driven by both demand and supply-side factors, which should be addressed using different policy approaches.

While the demand-side factors were being broadly addressed by the CBN, using the relevant direct and indirect instruments, steps are also being taken to address the supply side, through provision the Bank has continued to provide the necessary support, through its development finance initiatives in the real sector, to ease supply constraints.

“The Committee called on the Federal Government to prioritize efforts to curb the menace of insecurity to enable farming and other business activities return to normalcy. The MPC thus called on the Bank to continue its support to increase food supply in a bid to addressing food inflation.”

Members also noted the upward price pressure, particularly on transportation, resulting from the prolonged scarcity of Premium Motor Spirit (PMS) and called on the Federal Government to seek a long-term and viable solution to strike a balance between the pricing and supply of PMS in Nigeria.

The Committee appraised the continued recovery of output growth, noting that despite the obvious external and internal headwinds, the recovery has remained resilient with hopes of a stronger medium-term recovery. This is however, hinged on the continued support by the Bank and the Federal government to ensure that recent economic gains are sustained.