In light of the rising global and local inflationary levels, the Monetary Policy Committee of the Central Bank of Nigeria, raised the benchmark interest rate from 14 to 15.5 per cent on Tuesday
This represents a 150-basis-point increase from the 14 per cent rate voted during the last MPC meeting in July.
This is the third time the apex bank would be raising the Monetary Policy Rate, which is the same as the benchmark interest rate, in five months.
The MPC had raised the rate from 11.5 to 13 per cent in May, and further to 14 per cent in July, before increasing it to 15.5 per cent in a latest blow on cash-strapped Nigerian business, especially small and medium enterprises.
At the end of the MPC meeting, CBN Governor, Godwin Emefiele, told journalists that 10 members voted in favour of the rate hike.
The cash reserve ratio (CRR), which means the share of a bank’s total customer deposit kept with the central bank as cash, was also raised to 32.5 percent, from 27.5 percent since July.
Emefiele announced these decisions after the MPC meeting, saying that members were concerned with the continued aggressive movement in inflation, “even after the rate hike at its meeting in May and July 2022, and expressed an unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery.”
“We will keep increasing the interest rate to reduce the high effect of inflation,” Emefiele said, noting that “the tested monetary policy theory is that the easiest way to tame inflationary pressure is to raise rates.”
He explained that the MPC was of the view that with the aggressive policy normalisation of the economies, losing the policy stance could hurt the economy.
Emefiele said the bilateral air service agreements “did not say that you have to repatriate all of your dollars through the central bank. There is no law that makes it compulsory for you to purchase dollars from the Central Bank.”
It’s a panic measure – NACCIMA, others
The Director-General of the Nigerian Association of Chambers of Commerce, Industry, Mines, and Agriculture, Olusola Obadimu, described the rate hike as “a panic measure.”
“It is a pure panic measure. They might think that by raising interest rates, investors would be attracted to remain and others to come in and invest.
“However, an economy such as ours that is heavily import-dependent, experiencing stagflation and risking recession would not likely stand a chance.”
He said Nigeria must remain committed to its debt servicing obligations and control an appetite for more loans, particularly those taken to finance non-developmental efforts – both at the federal and the state levels.
He noted that the Federal Government must incentivise companies sourcing their raw materials locally.
“Additionally, we urgently need to promote exports, harmonise the exchange rates and encourage import substitution.
Deputy-President of the Lagos Chamber of Commerce, Mr Gabriel Idahosa, said the CBN had to increase the MPR in an effort to stem the rising inflation rate that had crossed the 20 per cent mark.
“The economy now threatens to slide into runaway inflation – which is uncontrollable in the short term. This sharp rise in MPR may help to slow down the inflation if it is supported by significant efforts to reduce the production costs of goods and services,” he noted.
“When one is going up, the other one will be going up as well, so also the exchange rate as well.
“The central bank is in position to do some things to be able to make sure that the interest rate is not out of tune. They can make borrowing expensive so that more people will not be borrowing, and when more people are not borrowing, there is going to be scarcity of money in the market.
“But in most instances, when people need money at all costs, they can get it at any interest. That is what we call “economic backlash.” Economic backlash is a situation whereby a policy which you put in place to be able to address a situation goes in the opposite direction. When you say that there is too much naira in the system and then raise the interest rate to make sure that people don’t borrow, note that there are some people who do not need to borrow in order to get ahead in their economic activities.
(Punch)
About the Author
718435 897142Superb post but I was wanting to know in case you could write a litte more on this topic? Id be extremely thankful if you could elaborate a little bit more. Thanks! 944613