The Central Bank of Nigeria says it is expecting inflation rate to hover around 13.97 per cent and 14.15 per cent by December 2020, a wide gap from its single-digit inflation target of between six percent and nine per cent.
CBN stated this in its monetary, credit, foreign trade and exchange guidelines for the fiscal year 2020/2021 report.
After an 11-month straight increase in the average price level, the inflation rate for July settled at 12.82 per cent, according to data from the National Bureau of Statistics.
The bank noted that the monetary targeting framework remained its policy strategy in the 2020/2021 fiscal year with implicit inflation targeting, saying that the primary objective of monetary policy remains the maintenance of price and financial system stability.
CBN, however, recognised that with the upward trend in inflation from the first half of 2019, lingering uncertainties from the external environment would exert pressure on monetary tools.
It attributed a rise in headline inflation to supply shocks due to a decline in economic activities globally as a result of the COVID-19 pandemic that started in the fourth quarter of 2019.
Also, it recognised demand shocks emanating from domestic and international lockdowns, food supply shocks associated with non-tariff border protection, and the effect of the implementation of the new budget and minimum wage as driving forces.
In the year, CBN said it would continue to sustain measures to abate the level of rising inflation through effective liquidity management measures, aimed at curtailing the level of inflation.
“The bank will continue to be proactive in its oversight function of the banking system to continue to ensure financial system stability,” said the report.
On the economy, CBN said the outlook was mildly optimistic, as its growth trajectory is expected to slow down in 2020 on account of the tepid global demand, resulting from the COVID-19 pandemic, depressed global aggregate demand and supply, and the oil price war which has resulted in supply glut and decline in crude oil prices.
In this regard, CBN estimated that output growth would lie between -3.1, -1.0 and 0.24 per cent in 2020, predicated on low oil price between $10, $20 and $30 per barrel.
“To ameliorate the impact of slow economic activities arising from the COVID-19 pandemic, fiscal and monetary policy responses were put in place to neutralise the adverse effects on growth-inducing sectors of the economy,” it stated.
On the real sector, CBN explained that the measures included the credit interventions in the health sector (N100bn), micro, small and medium enterprises N50bn) and manufacturing sector (N1tn).
“These initiatives are expected to encourage and expand domestic production, improve productivity as well as generate employment opportunities,” the apex bank noted.
CBN added that growth in consumer credit by banks, propelled by its policy to raise the loan-to-deposit ratio from 60.0 per cent to 65.0 per cent and global standing instruction clause, would improve credit delivery to households and MSMEs.
It stressed further the combination was expected to result in moderate unemployment and sustain the growth trajectory.
CBN said although the measures were commendable, there were headwinds that might undermine these expectations.
It then listed the headwinds to include increased federal government’s deficits, which the bank believed might narrow fiscal space and crowd out private investment.
“Sequel to the COVID-19 pandemic, the viability of the external sector in 2020 is expected to deteriorate, given the present worsening current account balance and depletion of external reserves driven, largely, by decelerating export receipts, particularly oil,” the bank stated.
