By Francis Akinnodi
An economist, Dr Ayo Anthony have stated that the new monetary policy by the Federal Government may help reduce Nigeria’s inflation rate in the long term.
The Hope recalls that the president in his message on The Challenges of the Currency Swap and State of The Nation, said one of the things the monetary policy would achieve in the short to medium and long terms, was to reduce inflation.
According to the president, in the short to medium and long terms, it is expected that there would be a lowering of inflation as a result of the accompanying decline in money supply that would slow the pace of inflation.
The economist, however, explained that in the short and mid-term, the policy may not reduce the inflation rate.
According to him, in the long run, the policy may work and may help reduce the inflation rate If and only if inflation in Nigeria is a monetary issue.
“For example, according to the statistics released, the CBN says about N3 trillion is the money in circulation, that is what you call money in supply.
“But out of the so-called N3 trillion in circulation, more than 60 per cent of it is not in circulation and still prices of goods are going up.
“More than 60 per cent of this money is not driving demand which means it is not in the banking sector.
“If money is driving demand, you can say money is the cause of inflation.”
He, therefore, said that the current inflation in Nigeria was not an issue of excess money in supply driving demand.
“So, currency redesigning may not in the short run address the inflation problem, because what is the essence of redesigning?
”It is to bring in money outside the banking sector into the banking system, it is to bring in money people have kept outside transaction into transaction.
“So if this money eventually comes into transaction, and other fiscal policy measures are not put in place, it may even drive inflation higher, because more money would now be chasing fewer goods.”
The economist, noted that the short and intermediate solution to inflation in Nigeria was to remove the bottleneck in aggregate supply.
Anthony said that supply was the major cause of inflation in Nigeria, saying there was no adequate supply.
He said if the money was available for suppliers, it may also move the price interest rate down, meaning that in the long run, Nigerians would see the positive impact of the naira redesign.
He said that on the energy supply side, most industries and factories used diesel as a source of power, which was now very expensive and on a steady increase every month.
He said the effect of this was an increase in the price of goods and services the companies were producing.
The economist also said insecurity was a supply-side factor, saying that the Russia-Ukraine war was affecting supply as well.
He said until these factors were addressed, Nigerians may not see any sign of price stability because inflation ideally was being influenced by two forces, demand and supply.
Leave a Reply