Weakening Naira blamed for record inflation

nairaFrom OKORO CHINEDU in Lagos, Nigeria

LAGOS, (CAJ News) – CALLS to devalue the Naira are set to heighten again following Nigeria’s inflation rate soaring to a four-time high.

The rise comes on the back of the weakening currency.

Inflation has risen to 11,4 percent in February from 9,6 percent a month earlier, representing the first time it has breached the double digit  threshold since 2012.

The main driver behind the move is the weakening of the naira against the dollar on the parallel market. The unofficial rate recently reached the 400 mark against the greenback largely due to foreign exchange restrictions.

This has effectively increased the cost of imported goods.

As a result, food inflation has increased by 11,4 percent in February compared to 10,6 percent in January.

Rand Merchant Bank (RMB) said the combination of falling oil prices and foreign currency exchange restrictions continued to skew the inflation momentum to the upside, which had breached the upper band of the Central Bank of Nigeria inflation target range of 6 percent to 9 percent since May last year.

“The inflation reaction function will continue to be determined by the parallel market naira rate which has been extremely volatile,” RMB said.

Thus, the bank said all eyes turn to next week’s Monetary Policy Committe meeting for further clarity on measures to combat inflation directly or hints towards devaluation of the currency.

However, First Bank of Nigeria noted the opposition of the CBN and the MPC to devaluation was partly based on the impact upon inflation.

“They have resisted the adjustment to the exchange rate, and headline inflation has still accelerated,” FBN stated.

FBN argued if they had devalued, inflation would also have picked up to reflect the new rate.

“The challenge for policymakers is that acute fx shortages have fed into inflation and would not be transformed by a devaluation. The gap between fx supply and demand has grown too large,” FBN stated.

CAJ News

Short URL: http://cajnewsafrica.com/?p=12108

Posted by on Mar 16 2016. Filed under Africa & World, Featured, Finance, Finance & Banking, National, News, Regional. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry

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