The Monetary Policy Committee of the Central Bank of Nigeria (CBN)on Tuesday again raised the Monetary Policy Rate from 13 per cent to 14 per cent, Theconscienceng reports.
Recall that the MPC had barely two months during its bi-monthly meeting in May, raised the benchmark interest rate from 11.5 per cent to 13 per cent.
The interest rate hike came just one week after the National Bureau of Statistics put its June inflation figure for the economy at 18.6 per cent, the highest in five years. Inflation had hit 17.71 per cent in May, 2022.
The MPC had left the MPR unchanged for over two years. However crippling inflation, worsening purchasing power and their attendant effects on the economy appear to have forced the CBN to effect policy changes.
Speaking shortly after a two-day MPC meeting that started on Monday, the Governor, CBN, Mr Godwin Emefiele, argued that a new rate hike was necessary to put the economy on track.
Emefiele, who spoke in Lagos, said the MPC noted with concern the continued aggressive movement in inflation, even after the rate hike at its last meeting.
He expressed the committee’s unrelenting resolve to restore price stability while providing the necessary support to strengthen the fragile recovery.
Speaking on the development, a professor of Capital Market and Chairman of the Chartered Institute of Bankers of Nigeria, Abuja Branch, Prof Uche Uwaleke, said, “The hike in the MPR in quick succession from 11.5 per cent to 13 per cent in May and now to 14 per cent could signal panic on the part of the CBN and heightens uncertainty.
“This policy stance may not necessarily curb inflationary pressure given the pressure is not coming from monetary factors but from high costs of petroleum products, electricity and insecurity, ditto for rising exchange rate.
“So, expect to see in the coming months higher cost of borrowing, widening government deficit, slower economic growth, rising unemployment and bearish stock market.”
Also reacting, the Founder/Chief Executive Officer, Centre for The Promotion Of Private Enterprise, Dr Muda Yusuf, said the key drivers of Nigeria’s inflation were supply side variables and not the demand part.
He said the previous hike in policy rate of 150 basis point in May did not have any significant impact on the inflation numbers.
Yusuf said, “The new MPR hike means that the cost of credit to the few beneficiaries of the bank credits will increase which will impact their operating costs, prices of their products and profit margins. The equities market may be adversely impacted by the hike.”
Also speaking, the Deputy-President of the Lagos Chamber of Commerce and Industry, Dr Gabriel Idahosa, said the rate hike would amount to misery for many Nigerians wallowing in abject poverty.
According to him, the Nigerian situation, with over half the population living below the poverty line, did not justify raising interest rates in the manner it was being done in advanced economies where the income level was significantly higher than Nigeria’s.
Idahosa said, “Our own economy cannot stand this kind of rate hike, where you have unemployment, inflation going to 20 per cent. Manufacturers are not able to cope with current interest rates because of the cost of production. Diesel alone is sending many of them out of business. If you now add a high-interest rate, it’s not good for businesses that are already suffering from those other issues of inflation and power supply. They are supposed to do it on paper because the monetary policy says if you have inflation, you should increase interest rates.
“People in advanced countries are earning much more than they need to survive. So, when you increase rates like this, they will be able to save more. It makes sense in a mature economy, but half of the Nigerian population are currently below the poverty line, by all indices.”
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