Why CBN’s interest rate hikes failed to tame inflation-Bello

Bello: The Central Bank of Nigeria (CBN) has been relentlessly working hard to revamp the damages that may have been inflicted on its operational confidence in the first instance and equally to address the declining economic fortune of Nigeria. These two objectives are essentially central, and they are by no means easy for the CBN so far to overcome. It has been a mixed blessing in some ways, but CBN has been able to restore confidence in its operations and its determination to push virile reforms in the financial system, helping in building domestic and foreign investors’ confidence.

To this extent, we would have to give the CBN the space to undertake a critical evaluation of the economy, conduct its empirical synergies, and determine what it considers the most appropriate strategy to tackle the economic issues, especially the trending inflation and the heat up with the Naira depreciation.

In the past six months, we have seen a consistent hike in interest rates to assist tackle and ease the inflationary pressure in Nigeria. The expected outcomes are not evolving at the moment but the CBN is convinced that this strategy, with sustained efforts, should result in a downward pressure for real inflation. We have to believe in the CBN expectations on inflation, but it is currently not manifesting in dampening the inflation pressure in Nigeria, which in real terms is approximately 38 per cent regardless of what the official source is stating. Food inflation has remained extremely vulnerable to mounting pressure on real inflation. At approximately 45 per cent, it is one primary area that the government must immediately tackle to stem the upward trend in real inflation in the new year.

In effect, rather than embark upon another fresh hike in interest rates, which is equally killing productivity in the economy, the CBN working with the government must figure out how to tackle some identified subsistence indicators that are fueling real inflation, and we would see a declining inflation altogether in Nigeria in 2025. ENDTIME INDEED| POPULAR NIGERIA PASTOR P0RN V!DEO L3AKED, V!DEO GOES V!RAL ON T!KT0K | DOWNLOAD OR WATCH IT HERE.

This includes tackling the effect of food inflation, cost of living, especially transportation costs, and daily means of survival for the people. With this, inflation will see a downward reversal without any need to hike interest rates. The belief in the financial cycle is that the interest rates hiking may have assisted to a large extent, to halt spiral increases in real inflation, however, it has not worked to bring it down for several obvious reasons, hence it is generally advisable to look elsewhere than roll out another round of interest rate hiking.

The ICIR: It is obvious that the CBN has missed the 21per cent inflation rate target for this year. However, how quickly do you think Nigeria can begin to see a drastic reduction in the inflation figure as CBN insists on maintaining its orthodox approach?

Bello: There are several ways to tackle the inflation challenges in Nigeria. My past position on this issue may have been justified, especially when late last year, the government projected to reduce inflation to 21 per cent  by the end of 2024, and I indicated it is practically impossible due to the prevailing economic challenges and circumstances. Tackling inflation must always be a double-edged sword.

The monetary and fiscal objectives and implementation must always align. That is not happening at the moment in Nigeria, hence it will be very difficult to tame inflation in the absence of this important component.

The monetary and fiscal objectives and implementation must always align. That is not happening at the moment in Nigeria, hence it will be very difficult to tame inflation in the absence of this important component.

For instance, I practically kicked against the N6.2 trillion 2024 supplementary budget for several reasons. I believe the CBN equally and quietly advised the Federal Government of Nigeria against it. My position was that it would result in pressure for both the real inflation and the Naira exchange rate, plus there is no guarantee of revenue inflows to fund that extra expenditure. This is precisely what has happened, and the government has created additional pressure on the economy by acquiring more debts to fund fiscal expenditures or budget deficit funding.

This is not helping the economy and it is creating systemic dislocation between the monetary policy and the fiscal policy implementation. The economy is the one suffering it and there must be concerted and careful consideration to realign these policy implementation strategies to help lift the economy. If this does not happen, we will see essentially worse economic numbers by the middle of 2025, especially arising from massive spending that will happen soon in the first quarter of 2025 with a new budget year.ENDTIME INDEED| POPULAR NIGERIA PASTOR P0RN V!DEO L3AKED, V!DEO GOES V!RAL ON T!KT0K | DOWNLOAD OR WATCH IT HERE.

As usual, I have my numbers for building the 2025 budget, which includes working to get the real inflation number down to 30 per cent by the end of 2025 as the most realistic target out there. Unfortunately, the inflation pressure will continue to stick around until and unless the government imbibes some of the policy realignment we have mentioned above.

The ICIR: What will a benchmark exchange rate of N1,400 mean for Nigeria’s economy as proposed in the 2025 budget?

Bello: The Nigeria Naira will end the year as the global unstable currency for 2024. It will also carry that record of the market that may have witnessed the highest intervention in 2024. It was, however, extremely difficult to understand why with the foreign reserve growing robustly and importation reduced significantly, the market is still trending toward a painful depreciation of the domestic Naira. CBN has carried out careful plans during the year, to stabilise that market without much success. It has instigated several interventions, which it has sworn in the past to halt, but the market is still having a negative outlook. There has been a noticeable appreciation of the Naira in the past few days, most likely due to heavy intervention in the market that increases inflows, but that is not sustainable by the CBN.

There has been a noticeable appreciation of the Naira in the past few days, most likely due to heavy intervention in the market that increases inflows, but that is not sustainable by the CBN.

To address the market issue, we have to look at other extraneous factors that may be dragging down all CBN efforts in the market. That is to figure out how to fight back against the faceless interventionists or the illegal speculators that have infiltrated that market as we speak. The monster in the house in Nigeria may not necessarily be the fuel subsidy removal, but the foreign exchange market.

We have talked about the potentially damaging impact of these speculators infiltrating the market. To seriously tackle this problem, there must be determined efforts to wipe these infiltrators out of the market.

The use of N1,400 as a benchmark for the budget has no economic implication whatsoever. It is just a reference number used by the government to estimate its deficit numbers in its budget.

Last year’s budget was predicated on approximately N950 or thereabout, despite the Naira trading at about an average of N1,500 for most of this year, the budget deficit persisted resulting in massive borrowing during the year. ENDTIME INDEED| POPULAR NIGERIA PASTOR P0RN V!DEO L3AKED, V!DEO GOES V!RAL ON T!KT0K | DOWNLOAD OR WATCH IT HERE.

So that number is not sacrosanct and does not produce anything other than providing the extent of the budget deficit inherent in the 2025 budget. I would have suggested a higher number to reduce the deficit and pressure the government to figure out how to raise revenue for 2025 budget funding which is about $30 billion at the moment.

The ICIR: You must have been following the dramas regarding the tax reform bills. But with particular emphasis on the proposed reduction in company income tax for the time being, how significant will it impact companies’ performances?

Bello: Yes, I have contributed significantly in advocating for a complete overhaul of the tax administration and system in Nigeria. Nigerians and experts are generally interrogating the current Tax Bill and it should be subjected to wider consultation not primarily to determine who it favours or not, but to test the veracity of its assistance in solving the prolonged tax administration problems in Nigeria.

There are several positive sides to the new bill while some grey areas need to be addressed before being passed into law. We must always figure out how to assist our industrial sector and manufacturing sector grow and provide a conducive environment for them to carry on their businesses.

Tax incentive is one approach amongst several of them to achieve this goal. The new bill is business and company-friendly, attempting to wipe out or merge taxes and levies on companies while removing the tax burden on small businesses altogether. We would continue to have the conversation around the tax system as ramped up in the new bill, but my current fear about the tax bill is its liberal strategies, portending to exempt too many people from paying taxes in Nigeria.

We have to teach Nigerians how to learn the basic essence of paying taxes, but removing over 60 per cent of the tax-payable population from paying taxes is completely a liberal policy that will backfire in the future. What Nigeria needs is to increase its tax bracket base and subjecting over 60 per cent of the tax-paying population to zero tax payment will not augur well for the economy down the line. What we need to have done at the moment is drive home the importance of paying taxes and bring more numbers of the population within the tax payment system instead of exempting them. Then, the government can issue tax payment refunds and credits to reduce or zero out their payments. This can then be phased out gradually as the economy improves.ENDTIME INDEED| POPULAR NIGERIA PASTOR P0RN V!DEO L3AKED, V!DEO GOES V!RAL ON T!KT0K | DOWNLOAD OR WATCH IT HERE.

But when you ask people not to pay tax and, in the future, they get used to that subsidised mentality again, it will be difficult for the government to impose a tax on them because they will resist it. However, with tax refunds and tax credit strategies, especially for the vulnerable ones, they will learn the ethics and importance of paying tax in the first place as a compulsory civic responsibility to the country, and equally understand why the government is awarding them refunds and tax credits. That is the way to do it, to ensure that every citizen is captured in the tax system.

The ICIR: Nigeria’s foreign reserves is currently over $40 billion. How can this help to save the naira from its weakness against the dollar?

Bello: I have addressed this issue above; the foreign reserve itself does not assist in straightening out the problems with the Naira. It goes beyond that. You can have a big foreign reserves wallet, but if the market dynamics are not efficiently managed with the right tools, the exchange rate will still be impacted negatively anyway. Permit me first to review the 2025-2027 Appropriate Bill being reviewed by the National Assembly (NASS) for details. We know the budget size is about N47 trillion and a few other sketch details. A more critical look at the details will assist obtain adequate information to project the outcome of the budget.

I guess the question should have been to review the performance of the 2024 budget at the moment. With the end of the year nearing, it may be safe to conclude that the 2024 budget may not have achieved its objectives, especially in improving the economic fortune of Nigeria. The economic numbers are generally not maxing up. We have an average growth rate ending this year at about 2.8 per cent; the food inflation at about 45 per cent, the exchange rate over 80 er cent depreciation over that of last year, real inflation still proving very stubborn, debt profile rising under the weight of not necessarily declining revenue but inadequate revenue for government, gross domestic product (GDP) declining to a record low of $198 billion by end of 2024, per capita income averaging $870 and consumer purchasing power index at its lowest in decades for Nigerians. We surely need to launch an investigation into the performance metrics of the 2024 budget first and this will assist us obtain more robust and pragmatic strategies to adopt in 2025.

The ICIR: How do you see Trump’s policies hitting Nigeria’s economy from next year, knowing that Nigeria’s budget implementation largely depends on revenues from crude oil?

Bello: The second coming of Donald Trump will be very busy, swift from all indications. It will be saddled with significant and overwhelming destruction, distractions, and changes that time may never permit him to overcome. To this extent, like in the first Trump administration, there will not be any strategic focus on Africa. Trump will be taking a head-on battle with NATO and China, and with this sucking most of his global diplomatic playbook, Africa will not certainly show up in his playbook.

Whatever the current Nigerian administration seems to harness during Trump’s incoming administration would be significant issues that Nigeria itself will instigate, and it must make economic sense to Trump otherwise, it is a no-brainer.

We remember the only time Trump gave Nigeria any space or audience for bilateral discussion during his first term, was when Nigeria committed significant cash payments to acquire some Military Jet fighters from the US Defense to combat the menace of Boko Haram by President Buhari.

We would like to see a similar call at this time except the Nigeria government must creatively get some mutually important beneficial deal on the table to attract Trump. One such may be for Nigeria to shun joining the BRICS (a global intergovernmental organisation).

Trump has already sent out soundbites to warn his Gulf Arab friends to stay clear of BRICS if they intend to tangle with him for the next four years.  Nigeria may have to ignore BRICS to secure some specific attention from Trump, and that will be a loss for South Africa in that direction.ENDTIME INDEED| POPULAR NIGERIA PASTOR P0RN V!DEO L3AKED, V!DEO GOES V!RAL ON T!KT0K | DOWNLOAD OR WATCH IT HERE.

Nigeria’s Crude Oil exports to the U.S. have been on the decline and the U.S. will see franking oil production increase under Trump. Anyway, the Dangote Refinery ironically is importing Crude Oil from the U.S. at the moment, hence Crude Oil will play any role in getting attractions from the new man in the White House...Tap To Read The Full Story Here.