There are no instant solutions to curbing inflation, even the deployment of monetary and fiscal measures can never provide quick fixes, financial markets analysts have said.
With 31.7 per cent inflation rate in February, analysts sought Central Bank of Nigeria (CBN) consideration of measures undertaken in three countries with significant inflation surge like Nigeria. Analysts at Financial Derivatives Company Limited, said although there are no quick fixes, but inflation can be managed as seen in Kenya, Turkey, and Egypt.
In emailed report to investors, Managing Director, Financial Derivatives Company Limited, Bismarck Rewane, said that Kenya, with $74 billion economy, recorded 5.7 per cent inflation rate in March, after pursuing tight monetary policy, getting International Monetary Fund (IMF) assistance, carrying out structural reforms that included upward review of fuel prices.
Turkey with $907 billion economy, also tightened its monetary policy, sold Eurobonds, did wage review and achieved 68.5 per cent inflation rate in March.
In Egypt, inflation in February surged to 36 per cent from 29.8 per cent in January, underpinned by 50 per cent hike in minimum wage and 800 basis point hike in interest rate in one month.
Rewane explained that not only tight monetary policy was used in these counties to fight inflation, new money were sourced, institutional intervention was undertaken from multilateral financial institutions, structural reforms and increase in productivity were also entrenched.
He insisted that for Nigeria, rate hike from 600 basis points in two months to 24.75 per cent alone cannot address inflation surge.
“Rate hike alone may not be a golden bullet that will address inflation. However, new money and intervention from institutions are needed as a backup for a quicker outcome,” he predicted.
He said that money supply grew by 79 per cent to N95.6 trillion in February adding that there is a direct relationship between money supply and inflation. “Money supply is projected to decline in the next quarter underpinned by the CBN’s proactive approach to tightening Monetary Policy Rate (MPR) and Cash Reserve Ratio (CRR),” he said.
He disclosed that the CBN-led Monetary Policy Committee (MPC) position that it will consistently raise interest rates until inflation numbers begin to rebound. Rewane said: “Inflation does not disappear over night. It takes focused commitment to rein in inflation. It took the US four months to record the first moderation in inflation. If exchange rate continues to appreciate, and other measures are employed, inflation numbers are likely going to decline by June”.
According to him, Nigeria attracted capital inflows of about $2.3 billion in February which were underpinned by increased demand for Nigeria’s securities by foreign investors.
“CBN data also showed overseas remittances more than quadrupled to $1.3 billion in February compared with $300 million in January. CBN efforts to increase forex liquidity include restricting banks’ foreign exchange speculative activities, prohibiting street trading in foreign exchange and capping net open positions at 20 per cent of shareholders’ funds,” he said.
