Contrary to predictions by analysts, tightening of the monetary policy by the Central Bank of Nigeria (CBN) might not effectively curb inflation, the World Bank has stated.
In its recent report titled, “Global Economic Prospects” on the outlook for the rest of 2024 and 2025, the World Bank rated Nigeria’s economic growth at 3.3% in 2024 as projected at the beginning of the year.
The World Bank also projected Nigeria’s GDP to grow at 3.5% in 2025, explaining that growth will pick up from the 2.9% recorded in 2023 due to the effect of the current administration’s reforms in the petroleum and forex exchange sector.
However, the report noted that the failure of monetary policy tightening by the Central Bank of Nigeria (CBN) remains a risk to the outlook.
According to the report, “Growth in Nigeria is projected to pick up to 3.3 per cent this year and 3.5 per cent in 2025. After the macroeconomic reforms’ initial shock, economic conditions are expected to gradually improve, resulting in sustained, but still-modest growth in the non-oil economy.
In addition, the oil sector is expected to stabilise as production somewhat recovers.
“Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation,” the report said.
The CBN since this year has increased interest rates by a combined 750 basis points.
Following the removal of fuel subsidy and subsequent unification of the foreign exchange which are President Bola Tinubu’s twin reforms, the naira depreciated to close 2023 at N907/$, declining at almost 100 per cent.
In 2024, the naira has further weakened to around N1400/$ reaching a peak of about N1,600/$ around February.
In response to these, the CBN engaged in a bullish monetary policy tightening spree.
In his first Monetary Policy Committee (MPC) meeting on assumption into office, CBN Governor, Dr Yemi Cardoso increased the interest rate by 600 basis points from 18.75% to 22.75%.
This was followed by another 200 basis points hike and a further 150 bps increase to reach 26.25%.
The apex bank also increased the Cash Reserve Ratio (CRR) of banks to 45%, representing one of the highest in the world.
Although, the CBN stated that the hike in MPR was necessitated to tame inflation, the impact has not yet materialised.