The Central Bank of Nigeria (CBN) once again raised the Monetary Policy Rate (MPR) by 0.25%, bringing it to 27.50 per cent from 27.25 per cent as part of efforts to combat surging inflation during its monetary policy committee on Tuesday November 26, 2024, the last for the year, raising concerns among stakeholders such as the Centre for the Promotion of Private Enterprise (CPPE).

Apparently, this is part of the ongoing response by the Bank to address the continuous upward swing of the inflation rate since 2023 when fuel subsidies were removed, and the naira was devaluated. Higher global crude oil prices leading to higher costs for energy, putting additional pressure on costs of logistics, manufacturing etc which have trickled into every other component that impact cost of living, further compounded this situation. According to the National Bureau of Statistics, the core inflation rate for October 2024 was 33.88%, indicating a continued upward trend while food inflation rate also increased to 39.16% in October 2024, up from 37.77% in September 2024. In its Consumer Price Index (CPI), the agency attributed this to increased transportation costs and higher food prices.

Experts accept that monetary tightening regimes such as the path the CBN has been on since 2023 are very effective for reducing inflation because higher interest rates can help slow down inflation by reducing demand for goods and services, increase savings and stabilise the naira. The higher interest rate environment can attract foreign investors, leading to increased foreign exchange inflows and a more stable naira.

The Bank has indeed taken steps to attract foreign investors and stabilize the naira through its monetary tightening regime. The regime has led to higher yields on treasury bills, making them more attractive to foreign investors. In fact, the central bank successfully sold a record-breaking ₦1.053 trillion in one-year Open Market Operations (OMO) bills, with nearly 80% of these bills purchased by foreign investors ¹.

Additionally, the monetary tightening regime has helped reduce the premium between the official and parallel market exchange rates, which declined to 6% in March 2024 from 25% in February 2024. This reduction in the premium is a positive sign for the stability of the naira.

The measures have also led to higher borrowing costs, meaning that consumers and businesses presently face increased costs for loans and mortgages and have their disposable income reduced and spending capacity decreased. This in turn is fuelling reduction in business expansion in turn fuelling unemployment in a country that is already struggling with a high unemployment rate and a rapidly increasing youth population.

Above all though, the worry for most Nigerians however is this: the inflation doesn’t seem to be going anywhere else but up, cost of living has continued to ruse, and prices for goods and services seem hell bent on getting out of the reach of the average Nigerian. Bearing these in mind, it is not surprising to note that Nigerians are concerned about when the promised improvements to the economy will come.

It is important to recall that the removal of fuel subsidies and devaluation of the naira are both structural adjustments aimed at improving the Nigerian economy's long-term health. These measures were expected to lead to the short-term challenges as are being witnessed now, but with the projection that they will ultimately contribute to a stronger, more diversified, and more resilient economy.

However, these are not the only factors fuelling inflation. Insecurity and declining agricultural productivity have also made significant contributions to higher food prices. Exchange rate and imported inflation are also contributing factors. These are driven by the heavy reliance of the Nigerian economy on imports. Higher exchange rate values automatically translate to higher prices, contributing to imported inflation.

All these mean that tackling inflation in Nigeria must definitely be incorporating multiple mechanisms beyond MPR rates, especially in an economy like Nigeria's that is cash, not borrowing, driven. A review of gains in tackling inflation cannot be complete by placing all expectations of its success on just the emplaced monetary controls. Such analyses will be imbalanced and incomplete. Consistent communication of the efforts being made across all these contributory factors must be sustained so that Nigerians can see not just the connecting dots but also have real-time visibility into what is being done to address each dimension of the complex web of factors fuelling inflation. That can also galvanise support and positive citizen action in the areas where these can help.

For instance, government’s investments in supporting agricultural development which can increase food production, reduce prices, and help combat food inflation will have a direct bearing in the management of inflation. Increased supply will affect price, and this will have an impact on food inflation.  Similarly, policies and investments in infrastructure, such as transportation and storage, will help reduce logistics costs and increase the efficiency of supply chains. Significant focus is being placed by the Federal Government on improving road networks across the country such as the Lagos – Calabar and the Sokoto – Badagry highways, as well as considerable focus on rehabilitation of major interstate roads. The Ministry of Works for instance identified a total of 260 major roads for rehabilitation in 2024.

The MPR is therefore one of many tools which are being used in a government cocktail to address inflation. Challenging its efficacy without taking into consideration all the other factors that work with it in the system to collectively fight inflation, and without also paying close attention to the local and international movements in the factors that fuel inflation will be reaching premature conclusions.

Finally, it is imperative that even Nigerian citizens become properly enlightened on how they can support the efforts to reduce inflation. By buying Nigerian products and promoting local industries, Nigerians will help in tackling imported inflation support small businesses also puts money in the hands of SMEs who are at the centre of driving the economy.