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Inflation, weak naira threaten CBN’s economic growth efforts

The surge in Nigeria’s inflation, as well as weak naira may pose a challenge for the Central Bank of Nigeria’s (CBN) efforts to boost economic growth, analysts at Cowry Asset Management Limited have said.

The analysts, who stated this in a report obtained by New Telegraph yesterday, warned that the profits of firms may be negatively impacted if the apex bank’s pro-growth policy measures are derailed by the increase in inflation and a devalued naira. As the analysts put it, “efforts by CBN to support output growth via its expansionary policies may be countered by rising inflation and depreciation of the local currency, and this may negatively impact profits of corporates.” Nigeria’s inflation increased for the 16th consecutive month to hit 15.75 per cent in December 2020.

According to analysts, inflation is likely to maintain its upward trend in the short term at least. For instance, the Chief Executive Officer, Financial Derivatives Company Limited (FDC), Mr. Bismarck Rewane, said in a recent report that he expected inflation to further rise to 16 per cent in January 2021, adding that the CBN was likely to adopt a tightening monetary policy stance in Q2’21. He stated that inflation in the country was mainly driven by factors such as devaluation effects, increase in money supply (including the Federal Government’s borrowings from the CBN), logistics and distribution costs, occasioned by the increase in the price of Premium Motor Spirit (PMS), supply chain disruptions and insecurity.

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