VAT hike, naira devaluation, others worsen inflation – CBN gov

The Governor of the Central Bank of Nigeria, Mr Godwin Emefiele, has said inflation in the country was worsened by the increase in Value Added Tax rate and petrol prices as well as naira devaluation, among others.

Emefiele, who spoke on Friday at the 55th Annual Bankers Dinner in Lagos, noted that inflationary pressure persisted during the year due to “the prevalence of structural rigidities and supply shocks”.

He said, “In addition to the disruption to global and domestic supply chains as a result of COVID-19, inflation was exacerbated by the increase in VAT rate, petroleum prices, electricity price adjustments, farmer-herder clashes, exchange rate adjustment, and flooding that occurred in many parts of our farm belt areas.

“Inflation in October 2020 stood at 14.2 percent. We however expect inflation to begin to moderate by the first half of 2021 as efforts are being made to enable significant cultivation and production of key staple items in the dry season.”

He said since the rise in inflation was not caused by monetary factors, traditional tools of monetary policy might not be helpful in addressing current inflationary pressures.

According to Emefiele, a more useful policy will be the supply-side measures implemented by the central bank.

He said emphasis would be placed on strengthening the development finance initiatives of the CBN in order to stimulate greater production and reduce unemployment.

“We intend to increase our support for measures that will aid improved cultivation of local produce in Nigeria, with particular emphasis on improving our yield levels, as food inflation continues to remain the key driver of inflationary trends,” Emefiele added.

He said with sustained implementation of the CBN’s intervention measures, the Nigerian economy could emerge from recession by the first quarter of 2021.

“We also expect that growth in 2021 would attain 2.0 percent. However, downside risks remain, as restoration of full economic activities, particularly in service related sectors, remains uncertain until a COVID vaccine is produced and made available to millions of people across the world,” the CBN governor said.

The country plunged into recession in the third quarter of this year as the Gross Domestic Product fell by 3.62 percent, compared to a 6.10 percent decline in Q2.

Emefiele said with the significant rise in COVID-19 cases in advanced markets and the imposition of lockdowns in parts of Europe, concerns remained on the impact this could have on growth in advanced economies, commodity prices and the financial markets.

“We must therefore find ways to insulate our economy from the impact of these shocks through our diversification efforts, while also working to ensure that we adhere to safety protocols in order to prevent a surge in COVID-19-related cases, as this could further cripple economic activities,” he added.