The recent reported rise of inflation in Nigeria from 9.3% to 9.4% is evidence that inflation continues to trend upwards in the country’s increasingly slow-growth economy. Given recent liquidity problems in the economy due in part to the inability of state and local governments to pay their workers, this is bad news because it can further reduce consumer demand.
Over the years, the Central Bank of Nigeria has guarded its core mandate for price stability very strongly. And it has done well relatively, albeit at the cost of very high interest rates. At its September meeting, the CBN left its benchmark interest rate at a whopping 13% although it did reduce its cash reserve ratio from 31% to 25%. This action was aimed at increasing liquidity, given the observed strains on the economic growth due to declining private and public spending.