The Central Bank of Nigeria (CBN), has projected that the country’s inflation rate, which stood at 12.82 per cent in July, may rise up to 14.15 per cent by the end of December 2020 as the Federal Government’s deficit financing rises due to current economic challenges in the country.
The apex bank which made the projection in a report titled ‘Monetary, Credit, Foreign Trade and Exchange Policy Guidelines for Fiscal Years 2020/2021’, released on Friday, said headline inflation is expected to hover around 13.97 and 14.15 per cent at end of December 2020, owing to supply shocks which may likely happen due to decline in economic activities, globally as a result of COVID-19 pandemic.
The bank said monetary policy responses were put in place to neutralise the adverse effects Covid-19 on growth-inducing sectors of the economy, but that there are many headwinds that may undermine the outcomes of the interventions.
“Although these measures are commendable, there are headwinds that may undermine these expectations.
“These include increased Federal Government deficits, which may narrow fiscal space and crowd-out private investment; underutilisation in the labour market due to weakened aggregate demand and a build-up in inflationary pressures resulting from the increase in Value Added Tax and border protection,” the report said.
“Specifically, headline inflation is expected to hover around 13.97 and 14.15 per cent at end-December 2020, owing to supply shocks which may likely happen due to decline in economic activities, globally as a result of COVID-19 pandemic that started in China in Q4:2019; demand shocks emanating from domestic and international lockdowns; food supply shocks associated with non-tariff border protection; and effect of the implementation of the new budget and minimum wage.”
According to the bank, in 2020/2021, the primary objective of monetary policy remained the maintenance of price and financial system stability.
“With the upward trend in inflation from the first half of 2019, lingering uncertainties from the external environment would exert pressure on monetary tools,” it stated.
The apex bank added that in 2020, it would continue to sustain measures to abate the level of rising inflation through effective liquidity management measures.
It said the aim was to curtail the level of inflation to a level that was conducive for inclusive and sustainable growth.
“The bank shall continue to be proactive in its oversight function of the banking system to continue to ensure financial system stability.
“Furthermore, it will maintain sound, stable and efficient payment systems to support the conduct of monetary policy.”
It said the monetary targeting framework remained the monetary policy strategy in 2020/2021 fiscal year with implicit inflation targeting.
It added that the growth in broad money supply (M3) would be closely monitored in line with the projections for 2020 and 2021.