Can Nigeria’s monetary policy stance stem rising inflation?
The Central Bank of Nigeria has postponed the November Monetary Policy Committee meeting for a second time as investors and market watchers play a wait-and-see game on the monetary policy stance to stem rising inflation. Johnson Chukwu, the CEO of Cowry Asset Management, joins CNBC Africa for this discussion.
Mon, 20 Nov 2023 15:34:05 GMT
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AI Generated Summary
- The delay in the Monetary Policy Committee meeting due to the absence of non-Central Bank members underscores the challenges in formulating effective policy decisions.
- Addressing structural challenges such as insecurity, infrastructure, and food production is essential to managing inflation without hampering economic growth.
- Maintaining exchange rate stability, implementing concrete measures to address FX demands, and adopting a balanced approach to interest rates are critical for sustaining economic growth amidst rising inflation.
The Central Bank of Nigeria has once again delayed the November Monetary Policy Committee meeting, leaving investors and market watchers eager to see how the monetary policy stance will combat the surging inflation in the country. Johnson Chukwu, the CEO of Cowry Asset Management, shared his insights on the matter. Chukwu pointed out that the Monetary Policy Committee has not been constituted due to the absence of non-Central Bank members, leading to the postponement of the meeting. This delay has left market players like investors using the Central Bank's movements as a proxy for potential policy decisions. The recent increase in Treasury Bills rates at the last auction signals a likely contraction in monetary policy to combat inflation and attract foreign investments. Inflation has continued to rise, reaching over 27% in October, posing a significant challenge amidst the need for economic growth under a new administration. Chukwu highlighted the importance of addressing structural challenges such as insecurity, infrastructure, and food production alongside monetary policy tools to effectively manage inflation without hindering growth efforts. The delicate balance between price stability and growth requires a comprehensive approach that goes beyond interest rate adjustments. Evidently, the focus on maintaining price stability by the central bank governor calls for strategic measures to enhance economic growth in parallel with inflation containment. The discussion also revolved around the central bank's toolbox and its limitations in addressing the current economic challenges. Chukwu emphasized the importance of maintaining exchange rate stability to support price stability, while acknowledging the external factors like insecurity that require fiscal interventions. Concrete measures to address foreign exchange demands and provide liquidity for investors were identified as essential for boosting investor confidence and stabilizing the economy. The recent open market operations signaling attractive investment opportunities through high yields pose concerns regarding sustainability and the potential impact on economic activities. Chukwu highlighted the need for a balanced approach to interest rates that would not only curb inflation but also encourage investments and productive economic activities. The challenge lies in managing interest rates to combat inflation effectively without discouraging active investments in the economy. As the monetary policy landscape remains uncertain, stakeholders await clarity on the direction of policies to navigate the economic environment. The delicate balancing act between growth and inflation calls for comprehensive strategies that address structural weaknesses and promote sustainable economic development. The role of the Monetary Policy Committee in steering the economy towards stability while fostering growth remains crucial in the current economic climate.