As the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) begins its two-day 283rd meeting today in Abuja, the first for the year 2022, members have been told to focus on growth instead of Inflation.
Dr. Biodun Adedipe, an economist and Chief Consultant, BAA Consult, made the point while discussing his views on the MPC’s policy direction.
According to him, Inflation witnessed a downward trend in the last eight months before it increased again to 15.63% in December 2021. He said the inflationary pressures would persist because 2022 is a pre-election year, and this would involve spending on political campaigns, resulting in increased domestic liquidity.
He said that Inflation would be tempered by economic growth, with the gross domestic product (GDP) growing between 3.23% and 3.5% at the close of 2022.
He noted that the non-oil sector would continue to drive growth, and despite the rise in green energy, hydrocarbons would still be in high demand.
“Nigeria is coming from a base where the economy has depended on imports. If the nation starts producing locally, that will take up the slack that imports took and would impact Inflation,” he added.
He noted that Inflation would still be double-digit for the year but would not rise above 19%, unlike some other African countries.
On the exchange rate, he said the MPC would need to interrogate the devaluation of naira because the nation’s import bill had grown exponentially, putting pressure on the external reserves. He cited a report that noted that between January and September 2021, Nigeria spent US$8bn monthly on imports.
“Based on the rising cost on the nation’s import bill, the external reserves cover is now between 4 to 5 months, which is bad for the economy. Unless our import bill drops significantly, the CBN would need to devalue the naira”.
Speaking further on global economic developments as it affects Nigeria, he said the normalization of interest rates in developed economies is not likely to affect the activities of portfolio investors in Nigeria.
He said that CBN MPC would take a dovish approach to policy and retain the policy rate and other parameters, including the cash reserve ratio, liquidity ratio, and asymmetric exchange rate corridor.