The Central Bank of Nigeria (CBN) has cautioned that the country remains vulnerable to inflationary and financial risks despite recent signs of easing price pressures.

It, therefore, stressed the need for more market-based instruments to strengthen monetary policy transmission and attract investments.

This comes after data from National Bureau of Statistics (NBS) revealed that headline inflation moderated by 175 basis points (bps) to 20.12 per cent year-on-year (y/y) in August (July: 21.88 per cent y/y), primarily driven by a slowdown in food prices (-87bps to 21.87 per cent vs July: 22.74 per cent) and core (-100bps to 20.33 per cent y/y vs July: 21.33% y/y) inflation.

On a monthly basis, headline inflation fell by 125bps to 0.74 per cent month-on-month (m/m (July: 1.99 per cent m/m), marking the lowest monthly print since February 2019.

Ahead of the Monetary Policy Committee (MPC) meeting, scheduled to hold next week, the apex bank, which held firm on its tightening stance in July, stated disinflation remains too slow to justify any policy easing. In personal statements by MPC members seen by Daily Sun on Tuesday, Governor Olayemi Cardoso, who chairs the MPC, said the bank is reviewing its liquidity management framework to ensure monetary stability is achieved without distorting markets.

“The sustained stabilization of monetary conditions naturally calls for a review of our approach to the implementation of our policy stance and the liquidity management framework to ensure effective monetary policy transmission. There is growing evidence of the need for the adoption of more market based instruments to support the development of the yield curve and further promote savings and the stability of the financial system. The availability of these tools will be important for the management of the transition from a high reserve requirement environment without creating market distortions,” Cardoso explained.

He stressed that this was particularly important given the persistently high demand for government securities in the primary debt markets, an indication of high liquidity levels in the financial system.

In evaluating his stance in the context of the foregoing developments and data driven forecasts, Cardoso said that there is enough justification for a sustained tightening of monetary policy.

“The pace of disinflation remains tepid and insufficient to warrant any easing of monetary conditions, and underlying inflation pressures and high stock of money supply call for a firm response before price stability is threatened. The negative real yields obtainable in the market also pose a deterrent to savings and investments in the domestic economy, and our focus must remain on lowering inflation levels further, to improve the attractiveness of local assets”, he stated. Sharing the same sentiment with Cardoso, Chief Executive Officer, Omapu Associates LLC and a member of the MPC, Aloysius Ordu, reiterated that tight monetary policy will be maintained for as long as necessary to anchor inflation expectations.

“Nigeria is thus not out of the woods yet. I continue to believe that our current tight monetary policy stance remains valid to rein in inflation. There is no such thing as double-digit and stable inflation. Our tightening stance is thus warranted for as long as it takes until inflation expectation is well anchored,” Ordu said.

Flagging Nigeria’s underwhelming foreign direct investment (FDI), Ordu noted that the country attracted just $1 billion in FDI in 2024, far below flows to emerging markets such as India ($28 billion), Egypt ($46 billion), and Brazil ($59 billion).

While remittances and foreign portfolio inflows have helped lift external reserves to $40.1 billion equivalent to over nine months of import cover, he warned that longer-term growth prospects remain constrained by low FDI inflows.

Clearly, the task of attracting inward investments into Nigeria must not rest on CBN alone. A whole-of-government approach is urgently needed,” he said, urging collaboration among ministries, regulators, and security agencies to create an enabling environment. Such a strategy, he added, is critical to moving Nigeria toward a trillion-dollar economy while creating jobs for its growing youth population.

For his part, Bandele Amoo, one of the MPC members, insisted that Nigeria’s economic stability hinges on sustaining a tight monetary stance until inflation falls significantly. “The current policy rates remain appropriate to maintain a tight monetary stance until a significant and sustained decline in inflation is achieved,” he said.

The committee thereafter stressed that deeper domestic capital markets and improved macroeconomic stability would not only enhance savings and investments but also reduce Nigeria’s reliance on foreign borrowing. (Daily Sun)