Expert faults MPC on inflation expectations

The Managing Director/ Chief Economist, Africa Global Research at Standard Chartered Bank, Razia Khan, has disagreed with the Central Bank of Nigeria’s (CBN) Monetary Policy Committee (MPC) over its position on the rising inflation rate. At the end of its meeting in Abuja last Friday, the MPC had stated that while it was concerned by the gradual but steady increase in headline inflation, “most inflationary drivers such as fuel shortages weren’t permanent and were outside of monetary policy control.” But reacting to this view, Khan said, in a note made available to New Telegraph: “We take a somewhat different view.

Despite the recent slowdown in money supply growth, shortages of key items should keep price pressures sustained, in our view. Given fiscal and external pressures, expectations of a future adjustment in the FX rate will keep inflationary expectations elevated. Achieving a turnaround in inflation may not be easy.”

The country’s inflation rate has accelerated for seven straight months, reaching 9.2 per cent in June, to exceed the apex bank’s six per cent to nine percent target band. The MPC kept its benchmark interest rate on hold at 13 per cent last Friday and also kept the Cash Reserve Requirement (CRR) on public and private sector deposits unchanged at 31 per cent. CBN Governor, Mr. Godwin Emefiele, said that naira, which has lost around 15 per cent against dollar over the last year, with an official devaluation in November and a de facto one in February, was “appropriately priced” at its current level of N197.

The bank has curbed interbank access to hard currency over the last few months in a bid to keep the naira on an even keel, although the restrictions have angered investors and frustrated companies that need dollars for imports. Emefiele rejected the idea of loosening the forex curbs, saying that the central bank could not adopt an “indeterminate policy” of currency depreciation. The weak currency has put pressure on inflation, which at 9.2 per cent is above the upper limit of the central bank’s target range.