The progressing and significant rise in broad money supply (M3) by 20.52 percent at the end of February 2024, over the preceding month, is a major headwind for inflation Dr. Bala Bello, MON, the Deputy Governor, Corporate Services Directorate has said.
He said this has reinforced the importance of liquidity management efforts of the CBN, the monetary authority to help curb inflation.
He made the comment in his comment during the Monetary Policy Meeting of the CBN held between March 25 – 26, 2024 in Abuja.
Broad money (M3) Broad money (M3) includes currency, deposits with an agreed maturity of up to two years, deposits redeemable at notice of up to three months and repurchase agreements, money market fund shares/units and debt securities up to two years.
Dr. Bala Bello indicated that “inflation is currently unacceptably high and requires decisive and coordinated efforts to curb it, given its adverse impact on citizens’ purchasing power, investment decisions, and broad output performance. The Federal Government’s initiatives at addressing food insecurity, such as the release of grains from the strategic reserves, distribution of seeds and fertilisers, and support for dry season farming, are important and commendable.’
The DG reiterated that reining in on inflation remains critical to CBN monetary policy decisions. “Of greater concern is the rising inflationary trend despite sustained hikes in the monetary policy rate with forecasts of further price increases in the near term. Both food and core inflation rose in February 2024, underpinning acceleration in headline inflation to 31.70 percent in February 2024 from 29.90 percent in the previous month. This continued rise in inflation was mainly due to persisting high production costs, lingering security challenges, and exchange rate pressures” he noted.
Thus the recent developments he said indicates that efforts by the monetary authority to stabilize the exchange rate, are yielding positive outcomes.
“The reported appreciation / relative stability in the naira exchange rate and accretion to the external reserves over the last month is a welcome development. The improved exchange rate position can be attributed to the policy rate hikes by the MPC and other “non-interest rate” measures, such as re-engineering the operational procedures for the Bureau de Change segment and addressing illegal/speculative tendencies in the market, among others. In view of the high pass-through effects of exchange rate appreciation, it is expected that inflationary pressures would moderate over the medium term” he assured.
He further stated that the sustained monetary policy rate hikes and other complementary measures attracting capital inflows are, therefore, important in that regard.
“I should emphasise that sustained resilience of the financial system is critical in the pursuit of disinflation” he said adding that it is “comforting to note that as of February 2024, major financial soundness indicators (Capital adequacy, nonperforming loans, and liquidity ratios) remained strong. Given the strength of the Banking system, I expect adequate funding of critical sectors of the economy to preserve the positive output performance and mitigate the aggregate supply-demand imbalances.”
