In a bid to tighten money supply, mop up liquidity and curb inflation, Nigeria’s Central Bank issued N2.8 trillion (US$918 billion) worth of debt instruments in 2017, says World Bank group.
The World Bank (WB) noted that in some cases, the issuance of the instruments was through unannounced special Open Market Operations (OMOs) at below market rates.
The global institution said the action by the apex bank positively impacted on investment.
“Tighter monetary policy led to high money market rates consistently above 18 percent, which contributed to stronger investor sentiment,” the bank said in its Nigeria Biannual economic report titled, ‘Connecting to Compete.’
“While the CBN policy rates remained unchanged throughout the year (monetary policy rate at 14 percent, cash reserve requirement at 22.5 percent and liquidity ratio at 30 percent), it tightened banking system liquidity through aggressive sales of liquidity management bills, diluting policy signals.”
Although the report noted that inflation declined in response to monetary tightening and exchange rate stability, inflation still remains high.
The headline inflation (on a year-on-year basis) declined continuously from 18.7 percent in January to 15.4 percent in December 2017. It has declined further to 14.3 percent in February 2018.
Food inflation remained very high, closing the year at 19.4 percent from 17.8 percent in January; in part due to the recurring farmer-herdsmen conflicts and the displacement of farming communities in the North-East of the country.
“The outlook on inflation by the World Bank group is expected to remain in double digits. Monetary tightening has had limited effect on bringing core inflation down in 2017. The possible increases in recurrent spending in the run-up to the election may add to inflationary pressures if the use of the government’s overdraft facility at the CBN grows significantly. Upward adjustments in fuel and electricity prices would put further pressure on non-food inflation (but are unlikely before the 2019 election). Food inflation will remain high in the face of continued unrest in the North-East and Middle-Belt regions. It is likely to decrease slightly because of base effects,” the report noted
