How Nigeria, Ghana can tame rising inflation

Inflationary pressures in Nigeria and Ghana have been on the rise, with rates climbing to 33.2% and 25.8% respectively in the month of March. The hawkish stance adopted by the central banks of both countries has raised concerns among analysts and policymakers. Godfrey Mwanza, a Senior Economist at Standard Bank, recently discussed these issues and more in an interview on CNBC Africa. One of the key points of discussion was the ongoing debt negotiations in Ghana. The finance minister clarified that the current negotiations were not a failure but part of an iterative process to align with the IMF's debt sustainability analysis. Mwanza drew parallels to similar restructuring processes in Zambia, highlighting that multiple rounds of negotiations are common before reaching a final agreement. The fluctuations in euro bond prices in reaction to the negotiations indicate the market's sensitivity to these developments. Another focal point of the conversation was the contrasting inflation trends in Nigeria and Ghana. While Nigeria has seen a continuous uptick in inflation, spurred by currency devaluation and fuel subsidy removals, Ghana has experienced more volatility due to base effects from the previous year's high inflation rate. Mwanza projected a peak in Nigerian inflation in the coming months, with expectations of further rate hikes by the central bank. On the other hand, Ghana may witness a year-on-year decline in inflation, driven by the base effect. In terms of currency dynamics, Nigeria's Naira has shown signs of improvement, being recognized as the best-performing currency globally in April. This rebound can be attributed to the central bank's measures to enhance Naira liquidity, supply dollars to the parallel market, and clear backlogs. The increased dollar inflows from international investors, stable oil prices, and remittances have also contributed to the currency's strength. Looking ahead, Mwanza forecasted the Naira to close at around 1,100 Naira by the end of the year. As both countries navigate the challenges posed by inflation and currency fluctuations, there are cautious optimism and strategic monetary policies in place to stabilize their economies. The upcoming monetary policy committee meetings will be crucial in determining the trajectory of inflation and exchange rates. While Nigeria and Ghana face unique economic dynamics, continued dialogue, adjustments, and proactive interventions are essential to tame rising inflation and ensure currency stability in the long run.