Nigeria: CBN Projects Lower Inflation, Cites $24 Billion Inflow from Reforms

The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, has reported a decrease in inflationary pressures due to the central bank’s policy measures aimed at reducing the current inflation rate of 33.69%. He also revealed that Nigeria recorded a foreign exchange inflow of approximately $24 billion in the first quarter of 2024, a 50% increase compared to inflows in previous quarters since 2021.

During an interview with Bloomberg TV in London, Cardoso emphasized that the period of excessive naira volatility is over, crediting the central bank’s monetary policy tools for stabilizing the forex market. He asserted that the Monetary Policy Committee (MPC) views inflation as a significant obstacle to Nigeria’s future and is committed to addressing it.

Despite these optimistic projections, an analyst criticized the assessment, suggesting it should reflect the experiences of the average Nigerian.

Since taking office in September 2023, Cardoso has implemented various measures to restore orthodox monetary policy, combat inflation, attract foreign inflows, and stabilize the naira. These measures include increasing interest rates by 750 basis points to 26.25%, clearing a $7 billion foreign exchange backlog, and overhauling exchange rate policies.

Data from the FMDQ securities exchange indicates that the naira has stabilized, trading within a narrow range of N1,473 to N1,490 per dollar this month. Despite this, many Nigerians are concerned that these policies have not reduced the prices of basic commodities amid widespread hunger.

Cardoso noted a deceleration in month-on-month inflation rates, describing it as a positive development. He reassured that the MPC remains vigilant in monitoring inflation trends and is determined to control and reduce inflation.

“The MPC has been very clear in stating that they see inflation as a major impediment to Nigeria’s future and would do everything possible to control and reduce it. There’s a deceleration in inflation rates, which is good news. We expect a continuation of this moderation,” Cardoso said.

Cardoso refrained from commenting on whether the tightening cycle that began in May 2022 might end when the MPC meets in mid-July, indicating that future decisions will be data-driven.

Regarding the exchange market, Cardoso expressed satisfaction with the progress in stabilizing the naira and anticipated further measures to drive down rates. He highlighted that speculation and manipulation in the FX forward contract market had previously contributed to naira volatility.

“We believe that we have seen the worst of the volatility. Addressing issues of confidence and trust was crucial. We are relatively pleased with the stability seen in recent weeks,” he said.

Cardoso attributed the increased FX liquidity in the first quarter of 2024, the highest since 2021, to CBN’s interventions. He reported a 415% increase in foreign portfolio inflow to N93.37 billion in April compared to the same period in 2023, with foreign reserves reaching $33.58 billion as of June 19, 2024.

To further enhance FX inflow, the CBN has set up a committee to facilitate more diaspora funds into the official FX market. Cardoso emphasized the importance of capital inflows in managing the exchange rate and controlling inflation.

“We’ve recognized the significant role of Nigerian diasporans in remitting funds. A committee has been established to double foreign exchange inflow from IMTOs. This initiative is already yielding results,” he noted.

Despite Cardoso’s positive outlook, Segun Ajibola, a professor of Economics at Babcock University, argued that the CBN policies have not yet improved the average Nigerian’s quality of life. He emphasized the need for the man on the street to experience tangible benefits, such as reduced food prices and improved living standards.

Ajibola also questioned the CBN’s decision to stop forex allocation to Bureau De Change operators, suggesting that reducing the demand for imported items would positively impact the naira’s rate.

In addition, the CBN has authorized eligible International Money Transfer Operators to sell foreign exchange on Nigeria’s official window to ensure greater remittance flows and improve market efficiency.

“As part of CBN’s commitment to the smooth functioning of the foreign exchange markets and enabling greater remittance flows, eligible IMTO operators can now access the CBN window directly or through their Authorized Dealer Banks for foreign exchange transactions,” the circular read.