Several economists have suggested that the Central Bank of Nigeria (CBN) should concentrate more on the demand and supply factors that push up prices and the structural issues behind inflation in the country. These experts made the recommendation while speaking with the News Agency of Nigeria in Lagos on Friday, stating that the surge in inflationary pressures shows that the repeated interest rate hikes have done little to combat rising inflation.
Recently, on May 24, the CBN increased the Monetary Policy Rate (MPR) to 18.5 per cent from 18 per cent for the seventh time. The MPR is regarded as the baseline interest rate on which every other interest rate used within an economy is built. At the last meeting in March, the Monetary Policy Committee raised the MPR from 17.5 per cent to 18 per cent.
The members voted to retain the Cash Reserve Ratio (CRR) of 32.5%, maintain the Liquidity Ratio at 30%, and keep the Asymmetric Corridor of +100/-700 basis points around the MPR.
Notably, Professor Ndubisi Nwokoma, Director of the Centre for Economic Policy Analysis and Research at the University of Lagos, urged the CBN to concentrate its attention on the cost overhead factors since they are driving inflation higher. He believes the apex bank should focus on the increased costs of production linked to supply chain disruptions, exchange rate variability, and growing price expectations resulting from Nigeria’s fiscal challenges. He also observed that the negative results of the cashless policy and the recent redenomination of the naira are also impacting the inflation rate negatively since cash has become more readily available after the crisis earlier in the year.
Similarly, Professor Uchenna Uwaleke, a finance and capital market expert at Nasarawa State University, Keffi, criticized the MPR hike to 18.5%. He argued that the repeated rate increase had further reduced access to credit for several Micro, Small, and Medium-sized Enterprises. He added that the rate hike was unlikely to bring the desired outcome, as recent experience has shown that substantive moderation in inflation could only be achieved by addressing supply-side factors and structural challenges driving up costs, such as insecurity, fuel, and electricity issues.
Overall, the experts urged the CBN to refocus on key drivers of inflation to find a lasting solution to the problem.
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