Following the recent decline in headline inflation as announced by the National Bureau of Statistics, many Nigerians have picked up a call for the Central Bank of Nigeria to suspend any further hike in the Monetary Policy Rate, seeing the decline as a positive signal that inflation was finally being reined in.

I will be quick to caution and say these are early days yet. It is too soon to begin to conclude that we are anywhere near out of the woods.  If anything, we need to stay on course and be very sure that these are not temporary, season-induced results.

So, while reducing the Monetary Policy Rate (MPR) following the decline in headline inflation in August 2024, might seem like a viable option to stimulate economic growth, it would be more prudent for the CBN to implement a further increase to further control the rising inflation.

The CBN's primary concern is addressing the root causes of inflation which include rising energy prices and food inflation due to flooding. By maintaining a tight monetary policy stance, the CBN aims to mitigate these pressures and prevent inflation from rebounding. Additionally, the rate hike was expected to attract foreign investors, increase portfolio investments, enhance FX liquidity, and support the CBN's interventions to stabilize the exchange rate. A temporary respite in inflation does not eliminate these other considerations.

While reducing the MPR might provide temporary relief to borrowers and boost economic activity, it can undermine the CBN's broader efforts to stabilize the economy. The CBN's decision to prioritize inflation control over economic growth suggests that reducing the MPR in September 2024 is not likely going to be considered anyway because it is certainly not the most effective strategy at this time.

Instead of this, commentators can consider advocating that the CBN should consider other alternative measures to manage inflation in September and going forwards.

Supply-side adjustments such as addressing supply chain disruptions, particularly in the food sector can help to reduce prices. This can involve improving transportation infrastructure, enhancing security for farmers, and investing in modern preservation facilities.

Another area that can be advocated for is the area of import duty adjustments: Reducing or adjusting import duties on essential commodities, like food items, could have increased supply and helped stabilize prices. However, this approach requires careful consideration to avoid negatively impacting domestic industries.