The rising inflation in the country amidst downturn in economic activities is quite worrisome.
It is stagflation which further complicates monetary policy against the backdrop of forex market illiquidity and rising unemployment similar to the country’s experience during the 2016-2017 recession.
This upward inflationary trend is the pass through to commodity prices of increase in VAT and the pump price of fuel, border closure, COVID’19 impact on supply chains and insecurity in the food belt regions of Nigeria. It is also a reflection of the high Exchange rate.
I think the best way to rein-in the rising inflation is for monetary and fiscal policies to synchronise in addressing the major inflation driver which is the food component that is in excess of 15%.
On the fiscal side, it is important that the government puts on its fighting gloves to wrestle the incessant bandit attacks on farming communities even if it means overhauling the entire security apparatus.
This government has articulated a good massive agricultural programme in the Economic Sustainability Plan. The time for aggressive implementation is not tomorrow, not even today, but now!
With respect to monetary policy, the rising inflation rate may compel the CBN to further tighten policy given its primary mandate of price stability.
But this move may roll back any progress recorded in the area of stimulating economic growth.
My advice to the MPC of the CBN is to continue to maintain status quo with regard to the policy parameters while focusing attention on how to improve liquidity in the forex market including through the on-going unification of Exchange rates.
There is no doubt that the CBN has done a lot in pursuit of its developmental function to stimulate the growth of the Agriculture sector in particular.
I am confident that in the coming months, the impact of these interventions, including the recent non interest financing schemes for the Agric value chain, will reflect on bountiful harvest and help moderate inflation rate.