CBN Forecasts Decline in Inflation and Exchange Rate Pressures, Positive Economic Outlook in 2024
The Central Bank of Nigeria (CBN) has provided a positive economic outlook for 2024, anticipating a significant decline in both inflation and exchange rate pressures. Governor Olayemi Cardoso presented this forecast to the National Assembly joint committee on banking, insurance, and other financial institutions. Despite short-term inflationary pressures, the CBN expresses confidence in a reversal of the rising trajectory in the coming months. Cardoso also highlighted the positive growth trajectory, attributing it to sustained improvements in the non-oil sector and fiscal and monetary stimuli.
Key Points:
- Inflation and Exchange Rate Forecasts: The CBN projects a substantial decline in inflation and exchange rate pressures in 2024. While acknowledging short-term inflationary challenges, the central bank anticipates a reversal of the rising inflation trajectory in the near future. Exchange rate pressures are expected to reduce significantly with a well-functioning foreign exchange market.
- Unification of Exchange Rate Windows: The unification of exchange rate windows in June 2023 has led to a new approach in managing the exchange rate. The policy aims to reduce arbitrage, rent-seeking behavior, and speculation in the market. The focus is on creating a market where the demand and supply of foreign exchange determine the exchange rate, leading to increased stability.
- Positive Economic Growth: Despite headwinds, the Nigerian economy has maintained a modest growth trajectory in 2023. Real GDP grew by 2.51 percent in Q3 2023, reflecting sustained improvement in the non-oil sector driven by increased investments and fiscal and monetary stimuli. The positive growth outlook is expected to continue through 2024.
- Challenges to the Domestic Outlook: Headwinds to the domestic economic outlook include rising energy prices, external debt service obligations, security challenges, legacy infrastructure deficit, tightening global financial conditions, and a slowdown in consumer demand due to the impacts of inflation on purchasing power.
- Trade Balance and External Reserves: Trade in Q3 2023 recorded a positive balance, with exports valued at N10.3 billion and total imports at N8.4 billion, contributing to an increase in external reserves. The positive trade balance is expected to support the external reserves further.
- Oil Export Revenue Projection: Due to domestic factors, less revenue is expected from oil exports in 2024. The OPEC projects a steady rise in global crude oil demand, but Nigeria’s production levels have been below the thresholds. The production limit for 2024 is set at 1.78 million barrels per day, affecting revenue projections.
- Consultations with Stakeholders: The CBN plans to engage in thorough consultations with the industry and stakeholders before releasing any pertinent information, demonstrating a commitment to transparency and collaboration.
Conclusion: The CBN’s positive economic outlook for 2024, with forecasts of declining inflation and exchange rate pressures, reflects the central bank’s efforts to navigate challenges and support sustained economic growth. The commitment to consult with stakeholders underscores the importance of collaborative decision-making in addressing economic complexities.
