The Central Bank of Nigeria (CBN), according to the Lagos Chamber of Commerce and Industry (LCCI) and other analysts, may stunt economic growth if it keeps raising the Monetary Policy Rate (MPR) to combat inflation.
In a statement made available to Vanguard, Dr. Chinyere Almona, director general of the LCCI, noted that the monetary authority’s continued hawkish stance is in response to the high inflationary pressure, but added that the action has not in any way slowed the rise in inflation.
Recall that the Monetary Policy Committee (MPC) of the apex bank at the end of its two days meeting on Tuesday increased the benchmark interest rate by 50 basis points to 18.0% from 17.5%, which is the sixth consecutive rate hike since April 2022.
Almona stated: “This consistent hawkish stance by the monetary authority is in response to the high inflationary pressure. At 21.91%, the inflationary rate is more than twice the targeted range (6 – 9%) set by CBN. Since April 2022, inflation has increased from 16.82% to 21.91% in February, 2023. Despite the 6.5% points increase in the key rate over the same period, inflation does not seem to be letting off.
“The price rises that continue to hit the system appear non-transitory. We, like the other market watchers, expected CBN to hold off an increase or at best moderate the key rate given the weak relationship between it and inflation especially after manufacturers and other businesses are groaning under high borrowing costs and the cash crisis.
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“While CBN has the overarching mandate of ensuring price stability, we suggest it should not be done in a manner that compromises growth, more especially in the face of high unemployment. Furthermore, the instrumentality of monetary policy alone appears quite insufficient to guarantee the desired results of low, stable, and predictable prices. We believe that structural rigidities around infrastructure and agriculture should be looked into and tackled to rein in inflation.
“Inflation chips away at purchasing power, leads to inventory stockpiles, undermines growth, and creates a lot of economic uncertainties. Taming it, however, should not be done at the expense of growth and the most vulnerable sectors.”
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