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Monetary Policy Makers In Nigeria Speak On Rising Inflation

This action, according to Mr Lukman Otunuga, a senior Research analyst with FXTM, was far from pursuing the global easing trend, “the CBN is putting up with steps to tighten monetary policy,” he reasoned.
In his estimation of the monetary policy issues in Nigeria, he explains:
The conclusion follows a bothering rise in inflation in December. Inflation rose to 11.98 per cent, meaning that day-to-day living is becoming more expensive as prices for goods and services rise.
Part of the added inflationary pressures are because of border closures and food scarcity fears.
On a long-term basis, the Naira’s weakness grazes into the dam of rising inflation.
Despite the threat of elevated inflation, the CBN has ruled out degrading the Naira. Policy makers could have a point here. An even  vulnerable local currency may activate worse effects. The overflowing dam could break and hyper-inflation – a nightmare strategy for any emerging economy – could flood the economy.
The central bank’s surmising for preventing an official devaluation is that it clenches ample foreign reserves to back the Naira’s value. Policy makers are also banking on rising oil prices to shore up the $38.6 billion in foreign budgets, at the time of writing. The CBN brushed off the vertical drop in foreign reserves from $42 billion to $38 billion in the last months of 2019, bringing up that instabilities are normal.
Uncertain CBN policy may impact certain consequence on banking sector. Less liquidity in the market might ameliorate rising inflation. But, on the other hand, it could add to everyday economic anxieties. A combination of high interest rates and less liquidity could  pinch corporate appropriations, possibly overseeing to job losses and lower investment in improvement, not to mention increasing the chances of debt defaults. This may impact the stability of the banking sector in the medium-to-long term.
On the financial policy side, higher Oil prices are pulling in more foreign reserves. But as Oil prices rise, so do fuel subsidies paid by the state, creating a hazardous fiscal circumstance. Nigeria is now set to adopt N1.59 trillion to fund the 2020 fund and the government has increased VAT to 7.5 percent from five percent to increase tax revenues.
Other anxieties bearing down on Nigeria’s economy stem from the US-China trade conflict which is frozen at the moment but could heat up at any time.
The central trading problems for Nigeria in this circumstance are China’s economic health – China and Nigeria are strong marketing collaborators – and the health of the global economy. If the global economy de-stress further, demand for oil would likely undermine and prices could experience more softness in the near term.
The economic costs of the coronavirus eruption to Nigeria’s economy must not be overlooked. China is Nigeria’s largest trading partner with total trade striking $3.25 billion during the third quarter of 2019. If the virus outbreak in China concludes in slower economic growth, the spillover consequence is likely to be felt in Nigeria as trade collapses.
The other major international change is the Brexit process. The UK’s isolation plan from the EU has been authorized by European and UK-based congresses. Although the UK officially vacates the EU on January 31. Over the next year, trade approvals will stay as they are. After that, there is considerable uncertainty over the status of trade deals agreed with the UK through the EU.
As a start, the UK-Africa Investment Summit pledges a way forward for forthcoming trade deals direct with UK partners. Four British companies  approved deals with Nigeria for street lighting, airport supervision towers and smart metering. The concern is whether this tempo can be maintained now that the UK has so many trade deals to put in place with the EU, US and China.
On top of that, Nigeria’s trade associations with the UK are now insulate from those with the EU, meaning that the UK’s negotiating power and economies of scale are considerably reduced.
In conclusion, Nigeria’s fiscal and economic policy builders face a difficult economic landscape. The mountain of anxiety around the US-China trade disputes; the quicksand of the Brexit process; economics effects of the coronavirus and the rising tide of inflation.

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