NewsHigh Cost Of Food Caused By Insecurity, Climate Change, Others – CBN

High Cost Of Food Caused By Insecurity, Climate Change, Others – CBN

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February 09, (THEWILL) – The Central Bank of Nigeria (CBN) says insecurity, climate change, subsistent and seasonal farming practices, as well as importation bottlenecks, have impacted majorly on food supply, its availability and price of food items in Nigeria.

CBN Governor, Olayemi Cardoso, made this known on Friday, in reaction to recent protests in Niger and Kano States over economic hardship in the country.

Speaking at the joint Senate Committee on Finance, Banking and Other Financial Institutions and National Planning on Friday, Cardoso also noted that the pressure on the nation’s foreign exchange market is causing a continuous decline in the value of Naira.

He, however, said the Apex bank is working with the Federal Government, as well as leadership of the National Assembly, to find a lasting solution to the issues

“The upward trend of food inflation is primarily due to supply shocks caused by insecurity, climate-induced factors such as flood and rainfall shortage in some cases, inefficient, subsistent and seasonal farming practices as well as importation bottlenecks that have impacted the prices of imported food items.

“Anecdotal evidence indicates that recent exchange rate volatility has fuelled more foreign demands for agricultural products, especially from neighbouring countries. While this presents an opportunity to expand and boost agricultural output, hence creating jobs in the sector, supply constraints exacerbated demand, instigating more inflationary pressures.

“The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira. Factors contributing to this situation include speculative forex demand, inadequate forex supply, increased capital outflows, and excess liquidity,” he said.

Speaking on the inflation rate in the country, Cardoso said, “In December 2023, the economic landscape revealed significant shifts. The headline inflation stood at 28.92% in December 2023 as against 28.20% in November, food inflation was 33.93% as against 32.84% in November, and core inflation was 23.06% as against 22.38% in October 2023.

“Headline inflation surged to 28.92%, propelled by food shortages, distribution challenges, and seasonal trends. The festive season’s consumer demand upsurge, following subdued periods due to energy and foreign exchange reforms, contributed to this trend, persisting from November through December yearly.”

Explaining what the Federal Government and the Apex Bank have been doing, the CBN Governor said, “The emergency committee on food security set up by the President has been taking several measures and we see an end in sight to the persistent rise in food inflation.

“On our side at the CBN, we have responded with significant monetary policy tightening to reign in inflationary pressure.

“Empirical analysis has established that money supply is one of the factors fueling the current inflationary pressure. For instance, an analysis of the trend of the money supply spanning over 9 months shows that M3 increased from N52.01 trillion in January 2023 to N68.25 trillion in November 2023, representing N16.24 trillion or 31.22 percent increase over the period. The increase in Net Foreign Assets (NFA) following the harmonisation of exchange rates and the N3.22 trillion ways and means advances were the major factors driving the increase in money supply.

“I am pleased to note the Fiscal Authorities efforts in discontinuing ways and means advances. This is also in compliance with section (38) of the CBN Act (2007). The Bank is no longer at liberty to grant further ways and means advances to the Federal Government until the outstanding balance as of December 31, 2023, is fully settled. The Bank must strictly adhere to the law limiting advances under ways and means to 5 percent of the previous year’s revenue.

“We have also halted quasi-fiscal measures of over 10 trillion naira by the Central Bank of Nigeria under the guise of development finance interventions, which hitherto contributed to flooding excess Naira and raising prices to the levels of Inflation we are grappling with today.

“The CBN’s adoption of the inflation-targeting framework involves clear communication and collaboration with fiscal authorities to achieve price stability, potentially leading to lowered policy rates, stimulating investment, and creating job opportunities.

“Our MPC meeting on the 26th and 27th of February is also expected to review the situation and take further decisions on these important issues.”

Cardoso said inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, aiming to rein in inflation to 21.4 percent in the medium term, aided by improved agricultural productivity and easing global supply chain pressures.

On the exchange rate management, the CBN Governor said the shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding. However, short-term volatilities are attributed to arbitrage and speculation.

“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs and IMTOs, enforcing the Net Open Position limit, Open Market Operations, and adjusting the remunerable Standing Deposit Facility cap among others.

“These measures, aimed at ensuring a more market-oriented mechanism for exchange rate determination, will boost foreign exchange inflows, stabilise the exchange rate, and minimise its pass-through to domestic inflation.

“Indeed, they have already started yielding early results with significant interest from Foreign Portfolio Investors (FPIs) that have already begun to supply the much-needed foreign exchange to the economy. For example, upwards of $1 billion in the last few days came in to subscribe to the Nigeria Treasury Bill auction of 1 trillion Naira, which saw an oversubscription earlier this week.

“Our measures aimed at improving USD supply into the Nigerian economy have significant potential in taming the volatility of the exchange rates. However, for these measures to be sustainable, we must, as a country, moderate our demand for FX.”

He further told the lawmakers that the genuine issue impacting the exchange rate is the simultaneous decrease in the supply of, and increase in the demand for US Dollars, adding: “It is also clear that the task of stabilising the exchange rate, while an official mandate of the CBN, would necessitate efforts beyond the Bank itself. It will also include actions by corporations and individuals to reduce our frequent demand for the dollar for business and personal needs.”

The CBN Governor, Cardoso, however, underscored the importance of the ongoing collaboration between the Fiscal and Monetary authorities and particularly progress made with the Minister of Finance, Minister of Budget and National Planning, and the Minister of Agriculture on tackling a number of the issues challenging the economy.

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