MPC Laments Of Nation’s Inflationary Trends, Recession, Retains Monetary Policy Parameters

By CLEMENT NWOJI, Abuja

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has expressed concern over the nation’s galloping inflationary trend and the consequent recession slipped into by Nigeria.

Consequently, the committee noted that embarking on further monetary expansion policies would trigger more inflationary pressures in the economy.

Therefore, the committee voted to retain all monetary policy parameters, according the CBN Governor, Godwin Emefiele while reading communique released at the end of the two-day meeting of the MPC.

Thus, the MPC voted to: Retain the MPR at 11.5 per cent; Retain the asymmetric corridor of +100/-700 basis points around the MPR; Retain the CRR at 27.5 per cent; and Retain the Liquidity Ratio at 3.

He said: “The Committee noted with concern that inflation has been on the rise for the fourteenth consecutive month, as headline inflation (year-on-year) moved up to 14.23 per cent in October 2020 from
13.71 per cent in September 2020.
This was attributed to the increase in both food and core inflation, which rose to 17.38 and 11.14 per cent in October 2020 from 16.66 and 10.58 per cent in September 2020, respectively.

“The continued increase in food and
core inflation was attributed to the persistence of insecurity across the country as well as lingering structural deficiencies impacting the logistics of moving food items to urban areas such as poor road
networks, unstable power supply and a host of other infrastructural deficiencies.

“Other factors include the persisting impact of coronavirus-induced supply disruptions, recent hikes in the price of energy products (PMS and electricity) and weak crude oil prices.”

The Committee expressed optimism that the rise in inflation will likely abate in the medium term, as domestic production is expected to recover, following the resumption of economic activities post-COVID-19 lockdown.

Emefiele said in addition to this, food inflation is expected to moderate as harvest season sets in, adding that Monetary and fiscal policies are also expected to continue their broad-based stimulus support
towards full recovery.

“This will involve fiscal measures to reduce unemployment, provide an enabling environment for private sector investment and necessary support to the health sector to cushion the impact of the coronavirus pandemic. In addition, the CBN is expected to sustain its various intervention measures to boost consumer spending and support the recovery”, he said.

The Committee noted that inflation continued to be driven by supply side disruptions arising from the COVID-19 pandemic and other legacy factors, citing that key amongst these are: the security challenges in parts of the country; increase in food prices; and the recent hike in pump price of PMS and electricity tariff.

The MPC, therefore, emphasized the need to address structural supply side issues putting upward pressure on costs of production and unemployment.

To address the public health crisis associated with the COVID-19 pandemic, the Committee urged the Federal Government to make relentless effort to procure a substantial quantity of the COVID-19 vaccines to surmount the public health crisis and pave the way for a broader macroeconomic recovery.

“With the economy, whereas MPC felt that government spending and Bank’s expansionary stance would be desirable to support recovery and guide the economy out of recession, it felt loosening
would trigger excess liquidity and worsen the inflationary pressure. MPC also felt that excess liquidity may impact demand pressure and fuel further depreciation of the naira”, Emefiele maintained