- Olayemi Cardoso, CBN Governor, says the bank’s strategies have helped reduce inflation by 50% month-on-month between February and May 2024
- Inflation rates within the period have increased from 31.70 per cent in February to a 28-year high of 33.95 per cent in May 2024 despite the interest rate hikes by the MPC
- This inflationary trend is also due to volatility in the forex market that has caused the depreciation of the currency against the greenback and other currencies
The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, on Thursday, July 12, stated that the bank’s strategies have been working, leading to a 50 per cent reduction in inflation month-on-month between February and May 2024.
Cardoso, who was speaking during a fireside chat with the publisher/CEO of BusinessDay Media Limited, Frank Aigbogun, at the 2024 CEO forum, with the theme, ‘Leadership in Tough Economic Times,’ assured that “in a not too distant future, things will begin to moderate.”
He added that the interest rate hikes by the Monetary Policy Committee (MPC) have been instrumental in taming inflation within the period and that the rates will come down soon.
The CBN governor also noted that the bank’s policies have helped restore investors’ confidence in the market, stabilised the naira and mopped up excess liquidity.
He said, “The Monetary Policy Committee is not oblivious to the fact that ultimately we do want the economy to grow.
“The country does need growth. If these hikes were not done at the time they were done. If you recall, naira to dollar was almost tipping over. This helps to stabilise it. That’s number one. Number two, very importantly, is that it is a timing issue. This is not something that I expect would remain with us forever.
“Fiscal issues are being moderated and the ability to soak up all the excess liquidity that we have in the system and be able to balance things out over some time; that’s the important thing for the MPC. I believe that for example, I can tell you that between February and May of this year, the month-on-month rate of inflation has gone down 50 per cent.
“As I said, this is not something that is one size fits all that I can expect to continue like this. To the extent that the right policies are used and obviously, with the results we have seen the right policies are being used. I believe that in the not too distant future, things will begin to moderate and interest rates will come down.”
Nigeria’s inflation rate between February and May 2024
The inflation rate in Nigeria, which measures the average change in the prices of goods and services over time, has been making a steady upward rise in the last few months.
Inflation has soared from 29.90 per cent in January to 33.95 per cent in May 2024, a 28-year high, driven by higher food and transport costs, according to data from the National Bureau of Statistics (NBS).
Within this period, the Monetary Policy Rates (MPR) has been reviewed upward by the MPC. In its last meeting in May, the MPC further raised interest rates to 26.25 per cent from 24.75 in February 2024. The thinking is that increasing interest rates will deter borrowers from taking loans, thereby reducing spending and curbing inflation.
This has, however, not gone as planned as the inflation rate keeps surging. The rate increased from 29.90 per cent in January to 31.70 per cent in February 2024. This represents a 1.80 per cent increase month-on-month and a year-on-year increase of 9.79 per cent from the 21.91 per cent recorded in February 2023.
In March 2024, the inflation rate increased to 33.20 per cent, which is a 1.5 per cent increase compared to the 31.70 per cent recorded in February. It increased by 0.49 per cent to 33.69 per cent in April 2024.
The May 2024 inflation rate saw a 0.26 per cent increase from 33.69 per cent in April to 33.95 per cent, the highest in 28 years.
Has CBN policies kept inflation below 50% m-o-m?
The inflationary trend between in January and May 2024 represents a 13.5 per cent increase. Also, the rates have bandied between 0.26 and 1.80 per cent increase, month-on-month. For instance, the rates between January and February increased by 1.80 per cent, while it increased by 1.5 per cent between February and March.
Between March and April, there was a 0.49 per cent change and a 0.26 per cent change between April and May 2024.
Going by the percentage change in the inflation rate month-on-month, Cardoso’s assertion of slowing inflation by 50 per cent month-on-month between February and May is largely true. However, this has not been reflected in the market where prices of goods and services have skyrocketed within the period.
According to data from the NBS, food inflation rose from 25.25 per cent in June 2023 to 40.66 per cent in May 2024, representing a 61 per cent increase within one year.
This is not also unconnected with the depreciation of the naira in the foreign exchange (FX) market.
The naira performed poorly in H1 2024
Recall that TheRadar had reported that CBN’s efforts failed to save the naira from depreciating against the dollar, pound and other convertible currencies in the first half (H1) of 2024 and was rated as the worst-performing currency alongside Egypt’s pound and Ghana’s Cedi.
The currency suffered a 40 per cent decline since the beginning of the year and weakened to N1,510/$ as of Thursday, June 27, according to data from the FMDQ.
Also, the unification of all segments of the FX has seen the naira trade as determined by market forces per time on a willing-buyer-willing-seller basis, leading to the currency soaring to a N1,900/$ high at the parallel market in February 2024.
In this regard, Cardoso also assured us that the currency would experience more stability going forward as distortions in the FX market were dislodged and stakeholders’ confidence restored.
“When we came into the saddle of leadership at the Central Bank, we looked at the system and found that there was an awful lot of distortion within the system. For example, illicit flows, people not abiding by the rules. So we believe that quite a portion of volatility, the wild swings in the exchange rate was due to these malpractices.
“We believe that with time, stakeholders are becoming a lot more comfortable with the way the market is being run now. There is no need to, for example, front load your forex request, you don’t need it. A lot of that is beginning to settle.
“Even with portfolio investors, we found that a good number of them came in, left and then came in again because they were pretty comfortable that there was a plan and that the plan was headed in a direction that they could see, understand and trust.
“To my mind, a lot of them, you know, wild swings that we saw, are gradually beginning to smoothen out as a result of a better understanding of the market, the greater transparency that is taking place and the comfort that those who are using the market see in it,” he said.
Tracing Nigeria’s inflation: A tenure-by-tenure breakdown from 1960 to present
Meanwhile, TheRadar had reported that following the recent Sallah celebration, Nigerians complained about the soaring inflation rate and its impact on food prices, saying it was the most acute in recent years.
Using data from the National Bureau of Statistics, TheRadar did a tenure-by-tenure analysis of the inflationary trend in Nigeria from 1960 to the present.
