The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has assured that the policies initiated by the bank will bring down inflation in the country to 21.4 percent by Q4 2024.
He admitted that the country’s foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira, and enumerated factors contributing to the situation to include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities.
Mr. Cardoso said, “Inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, aiming to rein in inflation to 21.4 percent, aided by improved agricultural productivity and easing global supply chain pressures.
“Inflation pressures may persist, albeit temporarily, but are expected to moderate significantly by Q4 2024. Exchange rate pressures are also expected to reduce with the smooth functioning of the foreign exchange market”.
The CBN Governor who stated this on Tuesday when he appeared before the House of Representatives on an invitation to sectoral debates said he is dedicated to refocusing the Bank by giving primacy to price stability.
He noted that the Bank also aims to build confidence in the Nigerian economy through the maintenance of stability in consumer prices and the foreign exchange market.
According to the CBN Governor, “We are aware that the twin challenges of inflation and exchange rate depreciation on our economy are daunting, however, they are not insurmountable.
“Monetary policy actions are sometimes inhibited by transmission lags, nonetheless, it is expected that the policy measures implemented by the Bank will permeate the economy in the short- to medium-term.
“We are committed to implementing policies that will ensure a stable macroeconomic environment and guarantee improved livelihoods for all Nigerians”.
Cardoso explained that the CBN’s inflation-targeting framework involves clear communication and collaboration with fiscal authorities to achieve price stability, potentially leading to lowered policy rates, stimulating investment, and creating job opportunities.
On the situation in the FX market, Cardoso said, “The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira.
“Factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities”.
He submitted that the shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding, however, he attributed short-term volatilities to arbitrage and speculation.
To address exchange rate volatility, he said that a comprehensive strategy has been initiated to enhance liquidity in the FX markets.
This, he noted, includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit, and adjusting the remunerable Standing Deposit Facility cap.
He acknowledged the economic costs of these developments not just for the economy, but also as they affect ordinary Nigerians, and assured that the costs are temporary as the Bank’s decisions will address a lot of fundamental issues bothering Nigeria’s macroeconomic landscape.
Cardoso added that these measures, aimed at ensuring a more market-oriented mechanism for exchange rate determination, will boost foreign exchange inflows, stabilize the exchange rate, and minimize its pass-through to domestic inflation.
