Nigerian economists have said that the increase in the monetary policy rate by the Central Bank of Nigeria will increase the operating costs of businesses in Nigeria and reduce their profit margins.
As expected, the CBN raised its interest rate from 11.5% since September 2020 to 13% on Tuesday.
Nigeria has been plagued by inflationary pressure at 16.82% which the CBN has been aiming to reduce to single digits since 2015.
Although Nigerian analysts are not surprised by the decision of the apex bank, they believe that it is a long trend of central bank policy tightening.
The CBN has recently focused on fiscal policy issues, but now wants to focus fully on its core mandate which is price stability, experts said.
“But whether that has a significant impact on inflation is another matter. Already, bank lending has been constrained by high CRR, discretionary debits from the apex bank, 65% loan-to-deposit ratio and liquidity by 30%,” said Muda Yusuf, director general of the Center for the Promotion of Public Enterprises.
Yusuf explained in a statement sent to THE WHISTLER that the recent rate hike means that the cost of credit for the few recipients of bank credit will increase, which will impact their operating costs, product prices and profit margins.
Inflation in Nigeria is fueled by liquidity problems in the foreign exchange market affecting access to manufacturing and other inputs, supply chain disruptions aggravated by the Russian-Ukrainian conflict.
Security issues that disrupt agricultural production, structural constraints affecting productivity in the agricultural value chain and manufacturing as well as high transportation costs are other issues facing the country.
Paul Alaje, an economist at SPM Professional, told Channels TV that monetary and fiscal authorities must work together to save the Nigerian economy from an impending economic crisis.
He said the CBN now has to deal with growth issues and unemployment issues.
Alaje said: “Right now we need our full arsenal to be at the forefront. We do not expect the monetary policy committee or the Central Bank of Nigeria to start dealing with the economy.
“The Ministry of Finance, Budget and National Planning must do more, the Minister of Trade and Investment must do more, all authorities regarding the economy, including housing estate, must do more.
“Inflation will continue to rise, with this policy we hope it will tame inflation to some extent, but growth is becoming a concern.”
Abdulqudus Abbas, an analyst, told Channels TV that the apex bank took the decision as a soft landing where GDP growth, which was 3.11% in the first quarter of 2022, will slow for inflation to moderate. .
“In trying to drive growth, we have to deal with these structural issues – deal with the logistical issues of clearing goods through ports, we have to deal with transportation, we have to deal with security which is at the heart of this whole discussion,” Abbas says. .
According to him, the country will still face rising commodity prices due to rising global energy costs.