As the Central Bank of Nigeria (CBN) intensifies its inflation fight, a member of the apex bank’s Monetary Policy Committee (MPC), Professor Mike Obadan, has said that monetary policy tightening may not be the panacea to Nigeria’s current inflationary pressures.

Obadan, who stated that the country should be wary of the “recessionary implications of too much policy tightening”

In the personal statement released yesterday by the CBN, Obadan stated: “The bank, has since May 2022, rightly responded to the inflation challenge, by sustained implementation of a tight monetary policy which has become tighter at every meeting of the MPC. But can this address all the triggers of inflation? I doubt; it can tame demand arising from monetary expansion but not the inflation arising from other sources.”

He argued that while the American Nobel laureate and monetary economist, Milton Friedman, had theorised that inflation is everywhere a monetary phenomenon, “he did not envisage the impact of the Nigerian peculiarities of low productivity of the economy, insecurity and banditry, oil theft, legacy infrastructure and logistics challenges, undiversified economy and heavy import dependence, among others.”

Prof. Obadan further stated: “Importantly, we need to be mindful of the recessionary implications of too much policy tightening; the trade off in terms of growth and recession may be significant. “Someone may argue that the fall-outs of the policy measures should not bother the CBN. I believe that it should. Importantly, it is not certain how much rate hikes need to be implemented to tame inflation.

Empirical estimates may be helpful but there is no certainty about it; moreover, there is no one-to-one correspondence between policy rate hikes and inflation reduction because of the existence of numerous extenuating factors beyond monetary policy influence.

“So, while the monetary policy stance should remain generally tight, policy rate hike should now be moderately done while a strong appeal is made to the fiscal authority to complement the bank’s efforts by implementing necessary bold reform measures aimed at addressing insecurity, significantly boosting revenue and foreign exchange and also ensuring fiscal consolidation.” Specifically, he recommended that the fiscal authority should adopt measures, such as ensuring proper coordination of fiscal policy with monetary policy and “engage in aggressive non-oil revenue mobilisation through innovative taxes, proper taxation of high income groups and abolishing tax waivers and undertake fiscal consolidation to prevent the need to accumulate Ways and Means advances.”

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