Economy
SOME economists said the decision of the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to increase its benchmark rate would spike inflation.
The experts said this in separate interviews with the News Agency of Nigeria (NAN) on Tuesday in Lagos.
NAN reports that the MPC unanimously increased the Monetary Policy Rate (MPR) by 100 basis points to 16.5 per cent from 15.5 per cent at the end of its two-day meeting on Tuesday.
The CBN Governor, Mr Godwin Emefiele, said the MPC also agreed to hold all other parameters constant.
The Assymetric Corridor of +100/-700 basis points around the MPR was, thus, retained, the Cash Reserve Ratio (CRR) was retained at 32.5 per cent and Liquidity Ratio of 30 per cent was also retained.
Mr Boniface Chizea, Chief Executive Officer, BIC Consultancy Services, said he anticipated that the MPC would increase rates but didn’t expect it to be this high.
“Yes! This was anticipated but probably not as steep as an increase of 100 basis points considering the rapid pace at which the rates have been increased over the last two to three meetings.
“With inflation rate rising beyond 20 per cent now the MPC did not have much of a choice. No corporate treasurer will be ready to save money today and earn returns several bases points below the rate of inflation!
“So, it is imperatives to raise base interest rates by this hike. Unfortunately on the other hand, interest rates as factor costs have the potential to spike the inflationary pressures,” he said.
Sheriffdeen Tella, a professor of Economics at the Olabisi Onabanjo University, Ago-Iwoye, Ogun, who didn’t see the increase coming, said the higher rate would compound inflation.
“When I heard about it, I was shocked. The higher interest rate will compound the inflation woe.
“Government should reduce its expenditure and CBN should stop lending to government. The exchange rate should further appreciate. Those are the solutions,” he said.
However, Prof. Ndubisi Nwokoma, Director, Centre for Economic Policy Analysis and Research (CEPAR) University of Lagos, said the increase the benchmark rate would fight inflation.
“Yes the increase was expected. This is as it should be given that inflation has risen to over 21 per cent and that the burden of debt service is increasing.
“The current negative return to capital vis-a-vis inflation should be addressed with this move.
“Though this tightening of credit by this move will impact negatively on economic growth; it will nonetheless help to fight inflation as well as attract new capital into the economy and address the challenges in the exchange rate of the naira,” he said. (NAN)
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Tags: Boniface Chizea CBN Godwin Emefiele Prof. Ndubisi Nwokoma
