The rate of inflation and the limits of monetary policy


Thursday, Nov 25, 2021 / 8:35 AM / by FDC Ltd / Header image credit: Pharmaceutical technology

The Monetary Policy Committee held its last meeting for 2021 yesterday and maintained the status quo on all parameters. Over the past 4 years, the MPC has maintained the status quo 89.29% of the time. Even though the market anticipated this outcome, this time more than ever, the move was seen as a prudent and wise move.

Policymakers have been caught in a trilemma of macroeconomic choices at a time when Nigeria does not have the luxury of time. With the 2023 general election just 400 days away and in the words of Maya Angelou, Nigerians are “hoping for the best, prepared for the worst and not being surprised by anything in between”.

It’s all about inflation! inflation!! inflation!!!

Rising inflation is now a global and regional problem – US (6.2%), euro area (4.4%), Ghana (11%), South Africa (5%) – but in Nigeria , inflation would slow down. Analysts believe the numbers may not reflect market conditions. Some are more concerned about the discrepancy between anecdotal and empirical data. Our Lagos synthetic basket of selected items, for example, shows that prices have increased by an average of 94.7% over the past 12 months compared to the national basket average (15.99%). While policymakers are determined to tackle price inflation, consumers are caught between the psychology of inflation and inflation expectations.

You can’t clap with one hand – A lesson from Ghana

For the first time in six years, the Bank of Ghana raised its benchmark interest rate by 100 basis points to 14.5% per annum, in response to rising inflation and a weaker cedi. At the next Nigerian MPC meeting in January, we believe the committee could take inspiration from the sub-Saharan Africa region and could raise interest rates if inflation rises again. It could also help preserve the value of the naira in the forex market. The naira had lost 15.94% between November 2020 and November 2021 from N483 / $ to N560 / $.

In the slides and video link below, Bismarck Rewane gives an in-depth analysis of the MPC’s decision and its impact on consumers’ disposable income and the strength of the naira in the forex market.

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Watch the video

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Related news on monetary policy

  1. CBN Communiqué No.139 of the MPC meeting – November 22-23, 2021
  2. As expected, MPC maintains status quo at end of November 2021 MPC meeting
  3. Pre-MPC note: to maintain the status quo?
  4. The important role of CBN in PSCE; Loans increased 13.8% yoy to N33.84trn
  5. No change in the position of the MPC
  6. Bank credit to the private sector increases as the economy recovers
  7. Personal statements from MPC members at the 138th MPC meeting September 16-17, 2021
  8. Steady growth of the PSCE; Increased 9.8% yoy in August 2021 to N33.4trn
  9. How to stabilize the Naira – Ayo Teriba
  10. CBN Communiqué No.138 of the MPC meeting – Sept. 16-17, 2021

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Related news on inflation

  1. Inflation in Nigeria drops to 15.99%, biggest drop in seven months
  2. Headline inflation slows to a 10-month low at 15.99%
  3. Headline inflation increases 15.99% yoy in October 2021 while food inflation increases 18.34%
  4. Inflation will fall again in October 2021 to 16.31%
  5. Inflation maintained its downtrend in September 2021 as the naira depreciated on the IEFX window
  6. Persistent inflationary pressures, stretched pockets
  7. Inflation drops to 16.63%, raising eyebrows
  8. Headline inflation increases 16.63% year-on-year in September 2021, 0.38% lower than in August 2021
  9. The recent trend of moderating inflation is likely to persist
  10. Inflation is expected to rise in September 2021 to 17.2%

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Proshare Nigeria Pvt.  Ltd.
Proshare Nigeria Pvt.  Ltd.

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