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CBN laments absence of policy, fiscal directives in economy

Godwin Emefiele, CBN Governor
Godwin Emefiele, CBN Governor

The Central Bank of Nigeria’s recently released post Monetary Policy Committee (MPC) report has blamed the challenges encountered in the nation’s economy on the absence of a clear-cut policy direction and fiscal gaps.

According to the CBN Governor, Godwin Emefiele, this situation had also handicapped the bank in proffering solutions to the challenges by way stabilizing prices in the economy.

The report further expressed displeasure at the developments in the inflationary pressure since this year amidst its monetary policies aimed at curtailing excess liquidity, one of the main drivers of inflationary pressures.

‘The drivers of the current upward inflationary spiral were of a transient nature and mostly outside the direct control of monetary policy. Consequently, the opportunity for further policy manoeuvre remains largely constrained in the absence of supporting fiscal measures’’.

This would mark the first official position of the apex bank in the emerging economic challenges that appeared to have defied all its efforts in recent months in the area of macroeconomic management.

The MPC report, therefore, called for coordination of monetary, fiscal and structural policies by the federal government as well as other relevant agencies of government in order to stimulate output growth, and stabilize the exchange rate.

It would be recalled that the last MPC meeting had expressed concern about the gradual but steady increase in headline inflation up to June 2015, and noted that this reflected a rise in both the core and food components of inflation.

According to the report, broad money supply (M2) declined by 0.61 percent in June 2015, below the level at end-December 2014. The modest decline in money supply reflected the decreases in the net foreign assets of 16.15 per cent and other assets (net) of 21.40 per cent.

During the period under review, money market interest rates were relatively volatile, owing to fluctuations in banking system liquidity.

Average inter-bank call and OBB rates opened at 6.55 and 6.45 per cent on 1st July, 2015 and closed at 26.51 and 21.00 per cent, respectively, on July 23, 2015. Average inter-bank call and OBB rates for the period were 9.83 and 10.23 per cent, respectively.

The seven month steady rise in headline inflation, measured by the Year-on-Year (YoY) change in the All-items Consumer Price Index (CPI), appeared to have been tamed as figures announced two weeks ago by National Bureau of Statistics (NBS) put inflation rate for July 2015 at 9.2 per cent, same as in June. Headline inflation has been on steady rise since December 2014.

NBS report for July showed a slower increase in price level during the month in Food & Beverages; Utilities & Other Fuels; and Furnishings & Household Equipment Maintenance divisions.

Also, the report shows food inflation remained steady at 10.0 per cent in July, the same rate recorded in June.

According to the NBS, high imported food prices and demand from the Ramadan period contributed to the rise in prices in the sub-index, while slower increase in the prices of meats, fish, fruits, and tubers moderated the pace of the increase during the period.

However, core inflation which is the price of all items excluding the price of agricultural produce inched up further by 40 basis points to 8.8 per cent in July, from 8.4per cent in June. According to the NBS, the increase was contributed by the rise in prices in the Transportation, Education, and Miscellaneous Goods & Services divisions.

The inflation report did not only beat forecasts by economy analysts but also left a big question as to what the year-end figures will be in the light of negative developments in the economy.

Previous week, economists at FSDH Merchant Bank Research released their inflation forecast indicating a continued upswing in the inflation rate.

It stated ‘’our model indicates that the price movements in the consumer goods and services in July 2015 would increase the Composite Consumer Price Index (CCPI) to 174.64 points, representing a month-on-month increase of 0.84 per cent. We estimate that the increase in the CCPI in July will produce an inflation rate (year-on-year) of 9.4 per cent higher than the figure recorded in the month of June’’.

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