Excess liquidity in Nigeria’s banking system may spur Inflationary pressure

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    Nigeria may see inflationary pressures rising from excess liquidity in the banking system due to negative real yield on short-term government debts, International Monetary Fund said.

    Yields on Nigeria’s one-year Treasury bills is at lowest since January 2016, while interest on three-month debt dropped to 6.5% as local funds pile into the debt after the central bank restricted their access to its higher-yielding securities. Six months government paper fell as much 19.7%, most in about four years.

    “In view of inflationary pressures —including from 4Q budget implementation and rising minimum wages— and with inflation at 15-month high, a tight monetary policy remains necessary,” Amine Mati, IMF Nigeria’s chief said in emailed response to questions. While low yield could spur bank lending, higher imports demand will increase pressures on exchange rate and international reserves, he said.

    Central bank Governor Godwin Emefiele said during November monetary policy review that inflationary pressure was due in part to seasonal end-of-the year uptick in prices and border closure that has led to “food supply shock which will adjust over the medium-to-long term as the economy increase investments in food production.”

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