Russia-Ukraine war and monetary policy in Nigeria

Abstract

Informed by the impact of the Russia/Ukraine war at the global level in terms of commodity shocks and surge in prices, this study examines the macroeconomic impacts of the war on the Nigerian economy and offers directions for monetary policy. In the first contribution, we construct a Russia/Ukraine war index as an improvement on the existing geopolitical index and use the index to examine the impact on firm-level stock prices, sector-level consumer prices, and individual-level consumer prices. The findings indicate that the effect of the war is inflationary, but the Nigerian stock market could offer portfolio diversification benefits for international investors. In the second contribution, we provide policy options to the monetary policy authority in Nigeria through scenario analyses from a structural model with oil price and monetary policy rate (MPR) as exogenous factors. The do-nothing scenario (maintain MPR at 18 %) appears the costliest with higher inflation forecasts than the option to raise MPR [by 100 or 150 basis points]. The option to reduce MPR [by 100 or 150 basis points] however produces lower inflation forecasts, which makes it a more plausible course of action. This suggests that inflation in Nigeria may not be totally a monetary affair that can be addressed by demand management policies alone.

Keywords

• C53
• E52
• N40
• O55