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CBN sees continued inflation uptick as economy reels from covid-19 pandemic, low oil prices

Nigeria’s Central Bank Governor, Godwin Emefiele said on Tuesday that the apex bank expects continued uptick in inflationary pressures as the country battles the impact of Covid-19 pandemic as well low oil prices on the already stretched economy.

Nigeria’s inflation accelerated the highest for the 12th consecutive month to 13.22 percent in August, majorly pushed by increasing food prices.

Speaking at the opening session of the 2020 Banking and Finance conference simultaneously held in Lagos and Abuja, Emefiele disclosed that the country will witness imported inflation because the economy still remains significantly import dependent, which will further accelerate the current price levels.

He noted that inflationary pressure persisted in the 1st and 2nd half of the year due the disruptions to global and domestic supply chains as a result of COVID-19 pandemic and was exacerbated by the increase in VAT rate, exchange rate adjustment and seasonal food supply shocks due to the onset of the farming season and other structural bottlenecks.

“We do think that Inflation may continue to tick upwards up till around December as we begin to see the effects of the harvest, but we are not comforted by the fact that, with the depreciation that we have seen in current CPCI as well as increase in price in energy for those who are wealthy and the manufacturing companies, that this will no doubt result in imported inflation because our economy still remains significantly import dependent and so no doubt this will further accelerate the level of inflation in the country”, Emiefele said.

Emiefele further said an increase in global crude oil prices is not expected. He said though crude oil prices have recovered from its low of $19 per barrel in April 2020, it is yet to return to pre-pandemic levels of over $60 in January 2020 and the country is not hopeful at all, that for the rest of 2020 that it will go above $50.

“it may just continue along the current level of the $40”, he said.

The CBN governor said this decline in crude prices, along with OPEC cut of production quota led to a significant decline in our foreign exchange earnings, along with a more than 60 percent decline in revenues due to the federation account.

“With the decline in our foreign exchange earnings and subsequent adjustments in the value of the naira vis-à-vis the US dollar, the CBN has continued to implement a demand management framework, which is designed to support improved production of items that can be produced in Nigeria, and further conservation of our external reserves”, he said.

Emiefele said the framework has helped to prevent a significant decline in reserves. He informed that Nigeria’s external reserves currently stands at $36 billion and are sufficient to cover 8months of import of goods and services.

Speaking on the impact of the pandemic Emiefele disclosed that investors withdrew over $100bn worth of funds from emerging markets between February and April 2020, due to uncertainties on the scale at which the virus could spread, and the impact it could have on economic activity.

The governor said Nigeria was not exempted from the drop-in flows, as capital importation into the country declined from $6bn in Q2 of 2019 to $1.2bn in Q2 of 2020.

Speaking further on the impact of the pandemic, Emiefele said the Nigerian economy contracted by 6.1 percent in the 2nd quarter of 2020, down from a positive growth of 1.87 percent recorded in the 1st quarter of 2020.

He added that the closure of schools, hotels and restrictions on movement led to contractions in the Transportation -49%, Accommodation(-40%), Construction(-32%) and Education (-24%) sectors.

Given the impact of COVID-19 on key economic variables, Emiefe noted that the fiscal and monetary authorities took unprecedented measures to prevent the economy from going into a tailspin.

Some of the measures he highlighted, include the creation of NGN 100 billion target credit facility for affected households and small and medium enterprises and N100 billion intervention fund in loans to pharmaceutical companies and healthcare practitioners intending to expand and strengthen the capacity of our healthcare institutions; among others.

The governor disclosed that N69 billion has been disbursed to 140,000 households and businesses.

Emiefele therefore tasked the banking and financial systems on proactive steps to support the growth of sectors such as Agriculture, ICT and Infrastructure, to strengthen their ability to deal with the challenges that have been brought on by COVID-19, and stimulate the growth of the economy

He announced that president Buhari has approved the establishment of a CBN led Infrastructure Company, working in partnership with the African Finance Corporation and the Nigerian Sovereign Investment Authority, Infra-Corp to enable the use of private and public capital to support infrastructure investment that will have a multiplier effect on growth across critical sectors.

Buhari, represented by the minister of Finance, Budget and National planning, Zainab Ahmed, urged the bankers and fund managers, to help partner with government in its efforts to diversify the economy and reposition the Country for a sustainable future.

“You must redouble your efforts, to mobilize domestic resources and attract foreign investment to create quality job opportunities for our teeming youths and lift people out of poverty”, he said.

The president expressed optimism in Nigerias economy, noting that policies have been put in place to help revamp the economy.

” Since we cannot simply wait for things to get better on their own, we have to formulate appropriate policies and implement them steadfastly in order to address the challenges head on.”

Meanwhile, the chairman Senate committee on Banking insurance and other financial institution, Uba Sani stressed on the need to fund small Bussinesses in the country. He added that manufacturing companies and agricultural industry be supported to help grow the sectors

“The way forward is supporting small Bussinesses in the country. Other areas we also need to support to help our economy is the agriculture and manufacturing Industries.

“We are also agitating at the level national Assembly’s that the government at the center increase the level of stimulus to the people of the country,a lot of people have lost their bussinesses, and out others are of business due to the pandemic”, he said.

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