CBN Stops Development Finance Initiatives Worth Over 10 Trillion Naira

The Central Bank of Nigeria (CBN) has put a stop to quasi-fiscal measures amounting to over 10 trillion naira. These financial interventions were previously implemented by the CBN as development finance initiatives. The decision to discontinue these quasi-fiscal measures was made in response to research findings that revealed a significant increase in the money supply due to these measures aimed at supporting Micro, Small, And Medium Enterprises (MSMEs), consequently leading to the current inflation levels.

Furthermore, the extensive nature of the quasi-fiscal functions has made it challenging for the CBN to focus on its primary responsibilities. This is mainly due to the limited independence of the CBN and the strong political influence to prioritize economic growth over other functions. The CBN’s move to cease quasi-fiscal measures indicates a transition towards a more focused Central Bank that prioritizes maintaining price stability.

Given that food inflation is a key driver of headline inflation and the inflation rate remains uncontrolled, there is mounting pressure on the CBN to reconsider its decision. This underscores the importance of clear communication regarding the boundaries of monetary policy tools to avoid ambiguity. It is essential for the CBN to consistently communicate and define its mandate and core functions when engaging with stakeholders to prevent the resurgence of quasi-fiscal measures. Therefore, the CBN must take a firm stance on how its monetary policies can be utilized to curb inflation rates and establish clear limits.