The severe economic shock was caused by Nigeria’s skyrocketing inflation rate, which reached 25.80 percent in August.
The most recent inflation rate reported by the NBS is the highest since August 2005.
Inflation was at 22.41 percent in May, 22.79 percent in June, 24.08 percent in July, and 25.80 percent in August.
While inflation was already skyrocketing before the gasoline subsidy removal program was implemented in June, the floating of the Naira on the foreign exchange market has made matters much worse.
In his inauguration address on May 29, 2023, President Bola Ahmed Tinubu said that gasoline subsidies would be eliminated because they were not included in the fiscal year’s budget.
True to his word, Tinubu ended the decades-long fuel subsidy in June, raising the price of gasoline to N600 per liter from N180.
The event was followed by the implementation of forex reforms, which resulted in a N915/$1 exchange rate for the country’s currency on the parallel market as of Monday, up from a N720/$1 exchange rate in June 2023. In June of that year, the official market exchange rate increased from N465 to N720 per dollar.
Prices of food, transportation, goods, and services across the country have all been affected by these regulations over the past three months.
The inflation rate has increased as a result of the rising cost of gasoline and the falling value of the Naira on currency exchange markets.
The inflation rate in Nigeria increased by 3.39 percent between May and August, up from 0.38 percent in June before the fuel subsidy elimination and exchange reforms were implemented.
The effects of inflation on the expense of living had not abated despite fluctuations in the value of the currency.
In July, the CBN opted to tighten monetary policy by increasing the interest rate from 18.50% to 18.75% in an effort to combat the rising cost of living.
However, the Nigerian Central Bank’s attempt to curb the country’s spiraling inflation has so far been unsuccessful.
Meanwhile, experts are hopeful for a shift after CBN Governor Olayemi Cardoso’s appointment.
DAILY POST published an exclusive interview with Economic Associates CEO Dr. Ayo Teriba on Monday, in which he warned that the country’s inflation will continue to grow until the FX market was stabilized.
When asked who is to blame for Nigeria’s rising inflation rate, he said it wasn’t the Central Bank of Nigeria (CBN).
People were dissatisfied with the June inflation number because they had anticipated a spike as a result of the simultaneous elimination of gasoline subsidies and unification of currency rates. Impact was emphasized by a few of us.
The BDC exchange rate was N745 to $1 prior to unification, but afterward it increased to N925. That’s the element that’s leaking into inflation. The main change is the updated official window. The exchange rate, which was N465 for $1 in June but is now N720, is a major contributor to price increases.
You can’t inflate prices, and Nigeria can’t keep a lid on consumer costs, as long as the currency rate fluctuates. That’s an issue with broad macroeconomics, not the CBN. Without a stable currency rate in Nigeria, the CBN is powerless.
It’s a problem for the people of Nigeria as a whole, not the people in charge of the country’s monetary policy. One of the most fundamental aspects of any nation is its exchange rate. The Minister or the CBN can’t handle this on their own. It’s more common in rural areas. The President has rallied the entire nation to participate. The lack of sufficient foreign reserves is the main issue. Our foreign exchange reserves are insufficient.
The President’s recent trip to India for the G-20 Summit is encouraging because it marks the beginning of his efforts to court foreign businesses. The Monetary Policy Rate, Cash Reserve Requirement, and others will have less of an effect as long as the currency rate remains volatile. Inflation will level out if we finally end the currency exchange rate volatility.
How quickly the change in the exchange rate would be reflected in final prices is the key question, he said.
Prof. Godwin Oyedokun, an accounting and financial development Don at Lead City University in Ibadan, argued that the country should abandon its long-standing practice of continuously tightening monetary policy in order to combat inflation.
I have always maintained that combating inflation with the same old methods is futile. There was no long-term benefit to the interest rate hikes that came with tightening monetary policy.
I think the incoming CBN Governor should take some time to reflect before hastily formulating a policy. It’s time for the country to calm down and figure out what will work best for her, he said.
SD & D Capital Management CEO Idakolo Gbolade added that the federal government and the next CBN Governor should supervise the effective implementation of fiscal measures.
The next CBN governor and his staff need to look into the failures of the previous administration’s policies in great detail.
Inflation reached 25.80% in August due in large part to the new government’s plans of eliminating subsidies and liberalizing exchange rates.
The new governor of the Central Bank of Nigeria is responsible for ensuring cooperation between the bank and the ministry that oversees it. To revitalize vital economic sectors, the government must swiftly disperse the financial facilities offered by the current administration.
To alleviate the widening disparity between the official currency rate and the black market, the Central Bank of Nigeria (CBN) should guarantee sufficient foreign money to meet the needs of the Importers and Exporters Window.
The government’s agriculture plans to combat rising food inflation should be swiftly implemented using the different recoveries by this administration.
By making sure banks adhere to CBN norms that are good for the economy, “the new CBN Governor should also curb the excesses of banks that are all out to declare huge profits to the detriment of the economy,” he said.