IMF sees Nigeria’s inflation ease to 26% on CBN’s tightening measures

Tightening measures deployed by the Central Bank of Nigeria among other regimes will likely tame inflationary pressures to 26 percent within the year; 23% next year and then to 18% in 2026, the International Monetary Fund (IMF) has forecasted.

Daniel Leigh, IMF Division Chief spoke about the forecasts in Washington on Tuesday while co-briefing on the Fund’s latest World Economic Outlook (WEO) during the ongoing Spring meetings jointly organised by the Fund and the World Bank.

He said the IMF is impressed by both the monetary and fiscal current policy directions, and on that basis Nigeria’s growth is projected to rise from 2.9% last year to 3.3% in 2024.

The CBN, in March went bullish again, and jerked up the Monetary Policy Rate (MPR) 200 basis points to 24.75 percent, indicating a 600 basis point raise within just a month.

The committee also adjusted the asymmetric corridor around the MPR to +100/-300 basis points, all of which reflect the CBN’s strong commitment to tackling inflation and exchange rate fluctuations.

While it retained the Cash Reserve Ratio of Deposit Money Banks at 45 percent, it adjusted the Cash Reserve Ratio of Merchant Banks from 10 per cent to 14 percent and left the Liquidity Ratio unchanged at 30.0 percent.

But even with those rate adjustments, headline inflation went up to 33.20 percent in March compared to 31.70 percent the February 2024, according to figures released by the National Bureau of Statistics on Monday.

Addressing those concerns raised at the press briefing, Leigh acknowledged rising inflation but called it a reflection of the pass through effects of ongoing economic reforms as well as exchange rate market on inputs and consumer goods.

“This explains also why we revised up our inflation projection for this year to 26%. But with the tight monetary policies and that interest rate increase, significant interest rate increases during February and March.

“We think we see inflation declining to 23% next year and then 18% in 2026. So in the right direction, definitely,” he noted.

On growth which the IMF sees will move up to 3.3 percent in 2024 but decelerate to 3 percent in 2025, Leigh said “We’ve seen an expansion from the recovery in the oil sector with a better security situation and also improved agriculture.

According to him, Nigeria’s economy is projected to benefit from the better weather conditions and the introduction of dry season farming.

“So there’s a broad based increase also in the financial sector, in the IT sector, among others.