How CBN contributed to Nigeria’s inflation -Moghalu

How CBN contributed to Nigeria’s inflation -Moghalu

 Kingsley Moghalu, former deputy governor of the Central Bank
of Nigeria (CBN), says the continuous financing of the federal government’s
deficits through ways and means, contributes to inflation.

 

Moghalu spoke in an interview with Arise TV on Thursday.

 

Last year, the federal government borrowed N6.3 trillion
from the CBN in the first 10 months of 2022 through the ways and means
advances.

 

Earlier in May 2023, the senate approved the sum of N22.7
trillion CBN loan spent by the executive arm of the government.

 

Ways and means is a loan facility through which the CBN
finances the government’s budget shortfall.

 

In May 2023, the senate amended the CBN act, increasing the
ways and means borrowing threshold from 5 to 15 percent for the federal
government.

 

Speaking on increased inflation rates in the country despite
interventions by the apex bank, Moghalu said the inflationary impact “is the
biggest and immediate threat”, in such a time of the removal of petrol subsidy
and naira float.

 

 “So, inflation in
Nigeria is going to just continue to shoot up in the immediate time, that is a
fact,” he said.

 

“This becomes a challenge because in order to attract
capital, when you have a very stiff rise in inflation, most times you need to
keep interest rates high for a while, but Nigeria’s economy is very funny, it
doesn’t always follow the textbooks.”

 

Moghalu said there are many reasons for the continuous surge
despite raising interest rates.

 

According to the economist, what is causing this current
round of inflation is “not the standard definition of inflation of too much
money chasing too few goods only, there is also a cost-push factor”.

 

 “Also, the central
bank itself was contributing to inflation through the monetary phenomenon of
illegal financing of the federal government’s massive deficits to the tune of
N23 trillion, in ways and means lending,” Moghalu said.

 

“Of course, you’re contributing to inflation with one hand
you say you’re fighting inflation with the other hand.  Why was the ways and means lending so high?
It is because you have a government that could not manage its fiscal books and
there you have the fiscal period of the price ladder being also relevant in
addition to the quantity theory of money and how they play out in the market
that causes inflation.”

 

To effectively manage inflation, Moghalu said the CBN needs
to be independent and free from the control of the government.

 

“If the federal government is far more responsible, and
disciplined with the budget and with spending, it will help the central bank to
manage inflation, but then the federal government is just spending or borrowing
like a drunken sailor, and then the central bank alone has to manage the
inflationary consequences. It becomes very difficult,” the economist said.

 

 “That’s why we talk
about central bank independence because it is necessary to checkmate what we
call the time inconsistency problem.”

Source: How CBN contributed to Nigeria’s inflation -Moghalu

 - NigerianEye
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