•Advises CBN, others to deploy traditional tools to fight raging inflation
•Creates ‘Food Shock Window’ to cushion effects of elevated food prices
Obinna Chima, Eromosele Abiodun and Nume Ekeghe in Washington DC
The International Monetary Fund (IMF) has predicted that Nigeria’s consumer price index (CPI) which measures inflation in the country would commence deceleration before the end of the year.
The Fund also advised the Central Bank of Nigeria (CBN) and other monetary policy authorities to continue to adopt traditional tools in fighting galloping inflation which has remained a concern to policy makers across the globe.
In addition, the Washington-based institution called for stronger fiscal and monetary policy collaboration to cage inflation in Nigeria.
Responding to a THISDAY question during a media briefing on the World Economic Outlook (WEO) at the ongoing IMF/World Bank Annual Meetings in Washington, the Divisional Chief Research Department, Daniel Leigh said: “For Nigeria, in particular, we forecast inflation at about 19 per cent this year, but then some moderation next year down to 17 per cent, and part of that does reflect the monetary policy actions by Nigeria’s Central Bank as well as the decline that we expect in oil and food prices globally.”
Inflation in Nigeria is presently at 20.52 per cent. The CBN had last month raised the Monetary Policy Rate (MPR), otherwise known as interest rate, by 150 basis points, to 15.5 per cent from 14 per cent.
The CBN had also raised banks’ Cash Reserve Requirement (CRR) by 750 basis points to a minimum of 32.5 per cent, from 27.5 per cent, in order to mop up liquidity from banks’ vaults and discourage currency speculation.
Also commenting on the best approach for the CBN and other central banks in Africa to fight inflation, the Chief Economist and Director Research Department IMF, Pierre-Olivier Gourinchas said: “Our advice, in general, is that central banks should first start with the traditional instruments of monetary policy and as you want to think about non-conventional instruments then you should think about what is the friction that is preventing the conventional monetary policy from working it will require a country or a central bank to deploy alternative ways of charting a course for monetary policy.”
The fund also revealed that to cushion the elevated hike in food prices globally, it has introduced what it described as a Food Shock Window, which would allow a number of countries to access emergency approved a new Food Shock Window under its emergency financing instruments.
This new window would be available for a year to provide additional access to emergency financing for countries facing urgent balance-of-payment need related to the global food crisis.
The IMF explained that the Food Shock Window would provide, for a period of a year, a new channel for emergency Fund financing to member countries, “that have urgent balance of payment needs due to acute food insecurity, a sharp increase in their food import bill, or a shock to their cereal exports.
“Access will be consistent with the actual balance of payments needs, and capped at 50 percent of quota, and will be additional to the current annual access limits under the RCF/RFI.
“The cumulative access limits under the RFI regular window and the RCF exogenous shock window, currently at 150 percent of quota, will be increased to 175 percent of quota for members that will borrow through the FSW. A review is planned by the end of June 2023.financing to deal precisely with elevated food prices,” it explained in a separate statement.
Speaking further on low-income countries that had been affected by the rise in food prices, Gourinchas said: ““Of late, food prices started to turn around and come down. There had been some positive developments, for instance, the Black Sea Green Deal that was implemented over the summer that allowed the exports of Ukraine wheat and some of the increases you’ve seen in the last few days reflect some uncertainty maybe about the continuation of the deal given the situation in Ukraine.
“The fund has just opened its Food Shock Window, which allows a number of countries to access emergency financing to deal precisely with elevated food prices. And so, this has just started. We expect a number of countries will be able to access funding through that new facility that is part of the emergency funding we have.”
Meanwhile, in a separate briefing on the ‘Global Financial Stability Report,’ the Director Monetary and Capital Markets Department, IMF, Tobias Adrian, stressed the need for fiscal and monetary policies to work hand in hand towards reigning in inflation as well as promoting inclusive and sustainable growth.
Adrian said: “Food prices and commodity prices have hit many sub-Saharan African countries very hard as most of the countries are importers of food.
“In particular, this comes on top of the previous crisis. The COVID-19 crisis is already in Sub-Saharan Africa and now we have this rise in commodity prices and of course, the tightening of global financial conditions that we already discussed.
“So many countries are already in debt distress or close to debt with high vulnerabilities. You know, addressing those debt issues is very high and that has triggered a tightening of monetary policy.”
There’s a variety of shades across countries, but is certainly also thought to contain inflationary pressures.”
