BREAKING NEWS
Breaking

728x90

468x60

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.”


Click to signup for FREE news updates, latest information and hottest gists everyday


Advertise on NigerianEye.com to reach thousands of our daily users
« PREV
NEXT »

No comments

Kindly drop a comment below.
(Comments are moderated. Clean comments will be approved immediately)

Advert Enquires - Reach out to us at NigerianEye@gmail.com