Nigeria’s external reserves fell by $216.85 million within four days, buckling under the heightening inflationary pressure, the latest data from the Central Bank of Nigeria (CBN) has shown.
The reserves, which stood at $39.01 billion as of May 13, fell to $38.795 billion as of May 19, representing a 0.56 per cent decline or N90.12 billion in approximated naira equivalent as at CBN’s rate on Friday, May 20.
Data from the National Bureau of Statistics (NBS) showed that inflation rate quickened to 16.82 per cent in April, faster than anticipated.
Still battling to recover from the Coronavirus pandemic which has yet to be abated, the Nigerian economy is not totally insulated from the spillovers of the current crisis in Europe, notably the Russian-Ukraine crisis, which has caused obvious disruptions to the global macroeconomic environment.
“The myriad of economic sanctions against Russia are constraining supply chains, tightening global markets and heightening vulnerabilities,” the CBN governor, Godwin Emefiele had said.
According to the NBS, Consumer Price Index (CPI), known as the inflation rate, jumps to 16.82 per cent in April 2022 from 15.92 per cent in March 2022. Food inflation rose to 18.37 per cent from 17.2 per cent, while the core inflation rate also spiralled to 14.18 per cent from 13.91 per cent respectively.
Last week also saw the Naira weaken further against the United States Dollar under demand pressure. At the investors’ and exporters’ foreign exchange window, the naira depreciated by 0.001 per cent to N420.33/$1 against the greenback on the back of the increase in Bonny light price to $111.15 per barrel.
However, a much wider margin was witnessed at the parallel market as the naira went down by 19.24 per cent against the greenback to close at N600/$1, while closing flat at the interbank forex market at N430/$1 amid CBN’s weekly injections of $210 million.
The hope that the naira may appreciate against the dollar, in the new week, looks bleak on supply shortfall.
“We expect some level of pressure on the Naira against USD due to anticipated pressure on foreign exchange amid electioneering activity coupled with weak petrodollar earnings,” analysts at Cowry Asset Management said.
While other domestic and global headwinds pressure the Nigerian economy – notably the Russia-Ukraine crisis which the country is not insulated from, CBN will (today) Monday 23 begin its two-day bi-monthly Monetary Policy Committee (MPC) to consider thoughts and perhaps signal a change in its monetary policy direction.
Some members of the committee had argued the inflationary process was primarily driven by supply-side and structural issues, which ordinarily requires no change in monetary policy stance.
But in his submission, Mr Adeola Adenikinju, a member of the MPC raised the fear that inflation might quicken to 16.84 per cent by May 2022. Although, by a slim margin, the committee members voted to retain the Monetary Policy Rate (MPR) at 11.5 per cent; keeping all other parameters unchanged at their last meeting.
In their communiqué, Adenikinju stated that as much as he was concerned about the current fragility of Nigeria’s growth recovery as well as the underlying driver of current inflation, there was a need for the apex bank to be prepared to anchor inflation expectations in the economy.
He had voted to increase the Monetary Policy Rate to 11.75 per cent. He said, “The Bank must signal a change in the current direction of monetary policy if the current inflation trend endures. Hence, I cast my vote to increase MPR by 25 basis points, and retain all other monetary parameters at their extant values.”
As Nigerians salivate in anticipation of the outcome of the MPC meeting, starting today, CBN had forecast real Gross Domestic Product to rise by 3.24 per cent in 2022 at an assumed oil price of $80/barrel. While the Federal Ministry of Finance, Budget and National Planning said it would grow by 4.20 per cent, on their part, the World Bank and the International Monetary Fund had projected 2.50 per cent and 2.70 per cent respectively.
“Due to the ongoing Russia Ukraine crisis, the Bank Staff forecast that inflation will continue to rise in the medium term to 16.84 per cent by May 2022,” Adenikinju also stated.
“There is no doubt that current recovery is fragile. Projected real GDP growth is not strong enough to support poverty reduction and reduce unemployment rates in the economy. The uncertainty and downside risks to the economy are also quite high. This is compounded by the huge insecurity across the country.”
“However, I do not believe that we can totally take our eyes away from the rising and persistent inflation build-up in the economy. While I agree that the current inflation is largely supply-driven, we need to deal with inflation expectations, which if not properly anchored, will compromise long-term investment and economic growth,” he added.
(Agency Report)