In a hawkish move, the Central Bank of Nigeria’s Monetary Policy Committee has raised the Monetary Policy Rate to 18 per cent from 17.5 per cent last Month.
The latest decision showed that the MPC had raised its MPR twice in 2023.
Godwin Emefiele, governor of CBN, disclosed this on Tuesday at a press briefing following its two-day MPC meeting in Abuja.
According to him, the decision was reached as part of the measure to stem rising inflation which jumped to 21.91 per cent in February.
Emefiele said the removal of fuel subsidies is inevitable for the good of Nigeria’s economy.
According to him, “Whether we like it or not, the subsidy will likely be removed before the end of this administration in May.
“To reduce the gap in negative real rates, we will continue to tighten but more moderately”.
The MPC retained other parameters, such as the Cash Reserve Ratio, at 32 per cent, while liquidity was also kept at 30 per cent.
But in reaction to the development on Tuesday in an interview. an Accounting and Financial Development Don at Lead City University Ibadan, Prof Godwin Oyedokun, said raising MPR will not tame inflation if factors spurring inflationary pressures are not curbed.
He explained that an increased interest rate would also lead to a price increase because manufacturers and investors would pass the burden of the high cost of a loan to the consumers of their goods and services.
“CBN will tell you that the action was taken to fight inflation, but Nigeria’s activities will tell you that things like this will not work. Because when you raise the interest rate, it means people who want to borrow money from the bank will have to pay more, and the cost will be added to the cost of production, which in turn affects the price. Raising MPR will not necessarily be the answer”, he said.
Also, a Financial expert, the CEO of SD & D Capital Management, Mr Idakolo Gbolade, said increasing MPR will not stem inflation, contrary to CBN’s claim.
“The CBN has based the increase in the MPR to 18% from 17.5% on the fact that it would arrest inflation, but like I said in my previous submissions, increasing the MPR alone without addressing other issues fuelling inflation would not yield the desired outcome. It is expected that increasing the interest rate should tame inflation if other variables are kept in check, as done in other climes.
“The Naira scarcity is hurting the economy, and high-interest rates have continually increased the cost of goods and services, with forex scarcity having a major impact on production.
“Unemployment and extreme poverty has affected purchasing power and have reduced consumer spending that could have increased economic activities. Food inflation constantly rises due to insecurity and natural disasters affecting agricultural inputs.
“The increase of the interest rate will not stem rising inflation if measures are not expeditiously taken to curb other factors spurring inflationary pressures”, he said.
In perspective, the decision of the MPC to hike MPR signals commercial banks to hike their interest rates on loans and advances to customers.