Kingsley Moghalu, the former Deputy Governor of the Central Bank of Nigeria (CBN), has attributed the country’s inflation to the ongoing practice of the apex bank financing the federal government’s deficits.

According to Moghalu, as long as the government continues to rely on ways and means to address its deficits, inflation will persistently increase.

He further emphasized that inflation is not solely defined as an excessive amount of money pursuing a limited number of goods, but also involves a cost-push element.

Kingsley Moghalu, a political economist and former presidential aspirant made this known  during an interview with ARISE TV.

Recall hat in the first 10 months of 2022, the Federal Government of Nigeria borrowed a total of N6.3 trillion from the Central Bank of Nigeria (CBN) through the practice of ways and means advances.

Additionally, in May 2023, the Senate approved a CBN loan amounting to N22.7 trillion, which had been utilized by the executive arm of the government.

In May 2023, the Nigerian Senate made amendments to the CBN Act, specifically increasing the borrowing threshold for the federal government through ways and means.

The amendment raised the threshold from 5 to 15 percent, allowing the government greater flexibility in accessing funds through this mechanism.

Moghalu highlighted that amidst the removal of petrol subsidy and the floatation of the naira, the inflationary impact is the most significant and immediate threat.

He said “So, inflation in Nigeria is going to just continue to shoot up in the immediate time, that is a fact.

“This becomes a challenge because in order to attract capital, when you have a very stiff rise in inflation, most times you need to keep interest rates high for a while, but Nigeria’s economy is very funny, it doesn’t always follow the textbooks.”

Moghalu said there were many reasons for the continuous surge despite raising interest rates.

According to the economist, what is causing this current round of inflation is “not the standard definition of inflation of too much money chasing too few goods only, there is also a cost-push factor.

Moghalu said, “Also, the central bank itself was contributing to inflation through the monetary phenomenon of illegal financing of the federal government’s massive deficits to the tune of N23 trillion, in ways and means lending”.

“Of course, you’re contributing to inflation with one hand you say you’re fighting inflation with the other hand. Why was the ways and means lending so high? It is because you have a government that could not manage its fiscal books and there you have the fiscal period of the price ladder being also relevant in addition to the quantity theory of money and how they play out in the market that causes inflation.”

In support of his argument, the former Deputy Governor of the Central Bank of Nigeria stressed the importance of the apex bank’s independence from government influence in effectively managing inflation.

According to him, maintaining the autonomy of the central bank is crucial to ensuring sound monetary policies and mitigating inflationary pressures.

He added “If the federal government is far more responsible, and disciplined with the budget and with spending, it will help the central bank to manage inflation, but then the federal government is just spending or borrowing like a drunken sailor, and then the central bank alone has to manage the inflationary consequences. It becomes very difficult.”