The International Monetary Fund has faulted the Central Bank of Nigeria’s monetary policy, saying that it has been ineffective in the fight against rising inflation.
The IMF in its report tagged ‘How Fiscal Restraint Can Help Fight Inflation’ urged the Central Bank of Nigeria to soft-pedal on increasing monetary policy rate.
It advised the Federal Government to tighten up its fiscal policy through investments in critical sectors capable of putting the economy on a better path in the long-term.
According to the IMF, “While monetary policy has the tools to subdue inflation, fiscal policy can put the economy on a sounder long-term footing through investment in infrastructure, health care, and education; fair distribution of incomes and opportunities through an equitable tax and transfer system; and provision of basic public services.
“The overall fiscal balance, however, affects the demand for goods and services, and inflationary pressures.
“A smaller deficit cools aggregate demand and inflation, so the central bank doesn’t need to raise rates as much.
“Moreover, with global financial conditions constraining budgets, and public debt ratios above pre-pandemic levels, reducing deficits also addresses debt vulnerabilities.”
The IMF also warned that “fiscal stimulus in the current high inflation environment would force central banks to slam on the brakes harder to curb inflation. Amid elevated public and private sector debt, this may raise risks for the financial system.”
Recall that the Nigerian Bureau of Statistics said headline inflation accelerated to 21.09 per cent against 20.77 per cent in September.
Food inflation maintained its upward trajectory, accelerating to 23.72 per cent with a month-on-month decline of 0.21 per cent. Core inflation similarly spiraled to 17.76 per cent in October.