CBN expects more inflationary pressure

Nigeria's Monetary Policy Committee (MPC) is bracing for higher inflationary pressures in the short term due to various risks such as escalating fuel prices, flooding, and exchange rate instability. The recent policy decisions made by the MPC are causing ripples in the market, with economists and analysts like Abdulazeez Kuranga, a Regional Economist at West Africa Standard Bank Group, weighing in on the implications. During a recent CNBC Africa interview, Abdulazeez Kuranga discussed the unexpected outcome of the MPC meeting, where a 50 basis point hike caught many off guard. Kuranga expressed that the market consensus was leaning towards a hold decision, primarily based on the recent moderation in headline inflation and the signals sent by the Central Bank of Nigeria (CBN) through its recent actions on deposit rates. However, the decision to increase rates was seen as a strategic move by the CBN to combat inflationary pressures preemptively. Kuranga shed light on the factors influencing inflation expectations, highlighting the impact of rising fuel prices, which are anticipated to drive up transport costs and food prices. He forecasted a slight rise in headline inflation in the coming months, potentially reaching 34% before moderating towards the end of the year. Despite the challenges posed by fuel price hikes, flooding, and other economic factors, Kuranga remained cautiously optimistic about inflation levels stabilizing by late 2025. The discussion also touched on the market impact of the MPC decisions, particularly the increase in the cash reserve ratio for deposit money banks. Kuranga analyzed the gradual approach expected from banks in adjusting to the new requirement, emphasizing the need for prudence in managing liquidity levels in the system. While the CBN has taken steps to address liquidity surges and exchange rate volatility, Kuranga highlighted the importance of coordinated efforts between monetary and fiscal authorities to tackle structural issues and foster economic stability. Looking ahead, Kuranga expressed confidence in the effectiveness of ongoing reforms and policy measures in navigating Nigeria's economic challenges. He noted positive outlooks from international rating agencies and underscored the importance of maintaining reform momentum to drive sustained growth. While acknowledging short-term pressures, Kuranga remained bullish on the country's long-term prospects, envisioning gradual improvements in key economic indicators as reforms take hold. As Nigeria grapples with inflationary headwinds and external shocks, the MPC's proactive stance on monetary policy signals a commitment to safeguarding price stability and reinforcing the country's economic resilience. While uncertainties loom, the collaborative efforts of policymakers, businesses, and investors will be crucial in steering Nigeria towards a path of sustainable growth and prosperity.