Collaboration between the Central Bank of Nigeria (CBN), Policy makers, the private sector, and civil society, to ensure price stability while minimising adverse effects on growth and livelihoods, is the key to driving meaningful change for the overall economic development of Nigeria, writes JOSEPH INOKOTONG.
A visible phenomenon in the economic firmament of Nigeria in the last couple of years has been inflation. The rate at which the general level of prices for goods and services rose, reducing the purchasing power of money has left many in quandary. Over time, things have become more expensive, and the same amount of money buys less.
It is, therefore, not surprising that the Central Bank of Nigeria (CBN) decided to shift from the past unorthodox ways, toeing the line of orthodox monetary policy. The shift has resulted in restoring confidence, strengthening policy credibility, and staying focused on its core mandate of price stability.
The path has not been easy way as managing disinflation amidst persistent shocks requires not only robust policies but also coordination between fiscal and monetary authorities to anchor expectations and maintain investor confidence. The CBN has always reiterated that it focus must remain on price stability, the planned transition to an inflation-targeting framework, and strategies to restore purchasing power and ease economic hardship.
The significant challenges presented in the past year, including persistent inflationary pressures, have been attributed partly to the global and domestic shocks. The CBN’s commitment to price and monetary stability despite these headwinds has yielded measurable progress.
This has manifested in relative stability in the foreign exchange market, narrowing exchange rate disparities, and rising external reserves of over $40 billion as of December 2024.
Recent data from the National Bureau of Statistics (NBS) indicate that inflationary pressures persist. As of December 2024, headline inflation stood at 34.80 percent, driven primarily by core inflation, while food inflation showed signs of moderation.
According to the NBS, the Food inflation rate in December 2024 was 39.84 percent on a year-on-year basis, showing 5.91 percentage
points higher compared to the 33.93 percent recorded in December 2023. It attributed the rise in Food inflation on a year-on-year to increases in prices of food items like Yam, Water Yam, Sweet Potatoes, Maize, Rice, Corn, etc.
However, on a month-on-month basis, the Food inflation rate in December 2024 was 2.66 percent which shows a 0.32 percent decrease compared to the 2.98 percent recorded in November 2024. The decline, the NBS highlighted, can be attributed to the “rate of decrease in the average prices of Local Beer (Burukutu), Pinto (Tobacco Class), Fruit Juice in tin, Malt drinks, etc (Soft Drinks Class), Rice, Millet, Maize flour, etc (Bread and Cereals Class) and Water Yam, Irish Potatoes, Coco Yam, etc (Potatoes, Yam & Other Tubers Class)”.
The average annual rate of Food inflation for the twelve months ending December 2024 over the previous twelve-month average was 39.12 percent, which was 11.16 percent points higher compared with the 27.96 percent average annual rate of change recorded in December 2023.
Aside from this, domestic structural challenges, exchange rate pass-through effects, and energy price adjustments continue to exert pressure on prices and economic activity. At the same time, while structural factors play a significant role in Nigeria’s inflationary challenge, monetary dynamics have also contributed to price pressures.
Experts say the liquidity injections associated with unorthodox monetary policies, particularly since the COVID-19 pandemic, have created a significant overhang. They noted that while these measures were intended to cushion immediate shocks, they did not translate into commensurate productivity growth, fueling inflationary pressures and heightened foreign exchange volatility.
This, in part, led to excess naira liquidity in the system, amplifying demand-driven inflation, and further exacerbated by supply-side constraints stemming from structural deficits.
These dynamics underscore the importance of a disciplined and coordinated approach to monetary policy to restore stability, adopted by the CBN.
In response, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria initiated a tightening cycle using orthodox approaches. Throughout 2024, the Bank implemented several bold policy measures across six MPC meetings, including raising the Monetary Policy Rate (MPR) by a cumulative 875 basis points to 27.50 percent, increasing the Cash Reserve Ratio (CRR) of Other Depository Corporations (ODCs) by 1750 basis points to 50.00 percent, and adjusting the asymmetric corridor around the MPR.
Many economic experts have estimated that without these decisive policy interventions by the CBN, inflation could have reached 42.81 percent by December 2024.
No doubt, inflation erodes purchasing power, discourages investment, and exacerbates inequality; therefore, managing the disinflation process requires a careful balance of policies that mitigate short-term costs while anchoring long-term stability.
In line with this, the CBN said it is fully committed to ensuring price stability while minimizing adverse effects on growth and livelihoods.
“As we move forward into 2025, I am optimistic that we have turned a corner and that disinflation is within reach. However, we must remain committed to bold, coordinated policy measures to consolidate our progress,” Olayemi Cardoso, Central Bank of Nigeria Governor said.
In a bid to create an enabling environment for inclusive economic development, the CBN has gone beyond monetary policy and undertook critical reforms to strengthen the financial system and ensure macroeconomic stability.
This includes the introduction of the Unified multiple exchange rate windows to enhance efficiency in the FX market. Already, this reform has yielded tangible results, with remittances through International Money Transfer Operators (IMTOs) rising 79.4 percent in the first three quarters of 2024 to $4.18 billion, compared to $2.33 billion in the same period of 2023.
Also, the CBN has cleared a backlog of foreign exchange commitments totaling $7.0 billion, restoring market confidence and improving FX liquidity. It lifted restrictions on 41 items previously banned from access to the official FX market, a measure introduced in 2015.
Similarly, the apex bank introduced new minimum capital requirements for banks, effective by March 2026, to strengthen the resilience and global competitiveness of Nigeria’s banking sector, positioning it to support the ambition of a $1 trillion economy. The Bank launched the WIFI initiative under the National Financial Inclusion Strategy, designed to bridge the gender gap in financial access, empowering women through financial services, education, and digital tools.
Just recently, the CBN launched the Nigeria Foreign Exchange Code, marking a decisive step forward for integrity, fairness, transparency, and efficiency in the FX market. The Code, built on six core principles, represents a binding commitment from the financial community to rebuild trust and inspire confidence.
These reforms reflect the CBN’s resolve to create a favourable and inclusive environment for economic development. Nevertheless, achieving macroeconomic stability requires sustained vigilance and a proactive monetary policy stance.
On the global stage, advanced economies are transitioning toward monetary easing; cautious optimism is emerging around potential improvements in capital flows to emerging markets. Therefore, Nigeria’s ability to attract these inflows will depend on investor confidence in the domestic reforms, particularly those ensuring macroeconomic stability and delivering positive real returns on investment.
It is encouraging that the CBN’s reforms have ushered in evidence-based results as exemplified by improving FX liquidity and fostering greater stability in the market. The naira gradually aligns with market fundamentals, creating a more predictable environment for domestic production, exports, and essential imports. While challenges remain, the CBN is confident its policies are setting Nigeria on the path to sustainable economic stability.
Bringing this to fruition and shared prosperity requires collaboration as the key. Policymakers, the private sector, and civil society must work together to drive meaningful change for the overall economic development of the country.
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