Inflation: Ex-CBN Official Advises FG On Excess Liquidity

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Government Printer, Rivers State , Mr. Bello Olatunde (right), receiving an Award of Excellence from the National Vice President, NUPPPPROW, North West, Comrade Dauda Adamu, during the 2017 Nigeria International Print Expo at Hotel Presidential, Port Harcourt, yesterday. Photo: Nwiueh Donatus Ken

The Federal Government has been advised to come up with creative and ingenious ways of mopping up excess liquidity in the system to curb inflation.
A former Deputy Governor of the Central Bank of Nigeria (CBN), Dr Obadiah Mailafia gave the advice in an interview with newsmen in Abuja.
Excess liquidity means commercial banks are holding more cash reserves than they ideally should, above the usual requirement for them.
“We have to have a very creative and ingenious ways of mobbing up excess liquidity in the system and putting it in a manner that will not cause inflation to arise.
“We need to restore confidence in the economy that is very important because confidence is not a quantifiable thing and yet it is extremely important.
“When you have a restoration of confidence in the economy, investors will bring their money. People who are hiding their money will bring it out.
‘’They will invest it and when they invest it there will be high productivity.
“ When that takes place in a stable micro economic environment, it has a way of reducing inflation pressures.
“So, restructuring confidence, the role of the monetary policy in reducing inflation and mobbing up excess liquidity and also higher increases in productivity and supply side production that will make the economy more productive, that has a way of helping inflation to come down.’’
He said that the role of monetary authorities such as CBN in mobbing excess liquidity would help the authority bring inflation to single digit.
The latest Consumer Price Index (CPI) showed that the country’s inflation dropped to 17.24 per cent in April on year-on-year basis from 17.26 per cent in March.
He further urged the government to address conflicts that could affect food production, noting that food accounts for 62 per cent of inflation in the country.
“We know that the middle belt is the food basket of Nigeria and in a situation where you have farmers-herdsmen conflicts, it will affect food production.
“This will have negative impact on food production and of cause when you have scarcity of food, inflation will get out of control.’’
Mailafia explained that inflation is not just high cost of living but the rate of change of prices over time.
“The cost of living in Switzerland is quite high but it is a low inflation environment. Inflation refers not to high cost of generalise goods but to rate of change of prices over time.
“ When the rate is accelerating high, that is what we call inflation not when prices are high and they remain high. That is not necessary an inflationary situation.’’