Taming Nigeria’s rising inflation

Nigeria's economy has been grappling with rising inflation in recent months, with September's inflation rate reaching 26.7 percent. While there has been a slight moderation in core and food inflation, the overall trend remains a cause for concern. Oluwamayowa Sanni, a Financial Institutions Sales Manager at Stanbic IBTC, shed light on the monetary policy response to inflation during a recent interview on CNBC Africa. Sanni highlighted the role of the Central Bank of Nigeria (CBN) in addressing inflation through benchmark rate adjustments. The CBN had initially set the benchmark rate, or the Monetary Policy Rate (MPR), at 17.5 percent at the start of the year. However, in response to rising inflation, the rate was raised to 18.75 percent. Despite these efforts to curb inflation, Sanni pointed out that there are broader economic factors at play, particularly on the fiscal side. He emphasized the need for the government to address issues such as food inflation, which accounts for a significant portion of the inflation basket. Factors like security challenges, weather-related disruptions, and exchange rate fluctuations contribute to inflationary pressures. When discussing core inflation, which excludes food and energy costs, Sanni noted that the removal of fuel subsidies earlier in the year had an impact on transportation costs, affecting the core inflation rate. Looking ahead, Sanni projected that inflation is likely to continue rising in the coming months, with a peak expected by next year. The average inflation rate for the year is anticipated to be around 26 percent, indicating ongoing challenges in taming inflationary pressures. In addition to inflation, market events such as the issuance of the Sukuk bond by the federal government have also been significant developments. The Sukuk bond, worth 350 billion Naira, aims to fund infrastructure projects, particularly road construction. Sanni highlighted the role of pension funds as major participants in the Sukuk bond market, underscoring the need for ethical investors to support such initiatives. While ethical investment is encouraged, attracting a diverse pool of investors remains a challenge. The recent FX reforms, including the removal of the ban on importers of certain items and efforts to achieve a unified exchange rate, have also been crucial in addressing currency challenges. Sanni pointed out that addressing supply-side constraints and clearing FX backlogs are essential steps to stabilize the market. While the removal of import restrictions is a positive move in the long term, ensuring adequate liquidity and market stability are immediate priorities. Sanni emphasized the importance of the new CBN governor's proactive stance towards market liquidity, signaling a commitment to addressing systemic issues. He highlighted the need for clear guidelines to resolve FX backlogs and introduce supply back into the market. As Nigeria navigates its inflation challenges and works towards economic stability, strategic policy responses and market interventions will play a key role in shaping the country's financial landscape.