Economy challenged by stagflation — CBN

*Retains monetary rates

By Emma Ujah, Abuja Bureau Chief

Despite the improved gross domestic product, GDP, report released by the National Bureau of Statistics, NBS, for the first quarter 2021, Q1’21, the governor, Central Bank of Nigeria, CBN, Godwin Emefiele, has said Nigeria’s economy is in stagflation, describing the GDP growth numbers as weak.

In economics, stagflation or recession-inflation is a situation in which the inflation rate is high, the economic growth rate slows, and unemployment remains steadily high. It presents a dilemma for economic policy, since actions intended to lower inflation may stagnate growth while exacerbating unemployment.

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It was against this backdrop that the CBN’s Monetary Policy Committee, MPC, yesterday decided to retain the Monetary Policy  Rate  (MPR) at 11.5 per cent, along with all other parameters with the Asymmetric Corridor at +100/-700 basis points around the MPR; Cash Reserve Ratio (CRR) at 27.5 percent; and the Liquidity Ratio at 30 percent.

Taking this position at the end of the MPC meeting in Abuja yesterday, Emefiele, however, said his team was determined to make a significant change through the various interventions of the apex bank.

His words, “Nigeria is one country that is in a situation that is out of the ordinary. Out of the ordinary because we find Nigeria being one country that is challenged by stagflation.   Stagflation is a situation where inflation is high, prices are running high and at the same time, output growth, in this case the GDP, is contracting and if you understand how this works, you would know that as an MPC, your core responsibility is to rein in inflation by ensuring that you keep the price and monetary stability mandate.

“On the other hand, the economy is confronted by a contracting output, where growth is negative. The normal way to recover from a contracting economy is by easing and injecting liquidity into the economy to stimulate consumption and investments and increase government expenditure.

“We are in a situation in which the objectives or goals are moving in opposite directions.   What do we do?   We will remain, as much as possible, pro-growth but at the same time, we will keep our eyes on whatever can be done to rein in inflation.”

He dismissed those who faulted the recent growth data in which Nigeria exited recession in the fourth quarter 2020 and sustained positive GDP numbers in the Q1’21 with 0.51 per cent, as according to him, the result indicated the success of the various interventions by the bank and fiscal authorities.

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