ising inflation rate which peaked at 18.6 per cent in June, unsettled members of Nigeria’s Monetary Policy Committee (MPC), resulting in a unanimous vote to tighten the Monetary Policy Rate (MPR) from 13 per cent to 14 per cent.
“Inflation is a terrible scourge and so we need to do more work on inflation. As long as we see inflation at a level that deters growth, the MPC is very determined that if it continues, we would continue to tighten rate,” Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele said.
TheNewsGuru.com (TNG), meanwhile, recalls that the last time MPR rose to 14 per cent was in 2016 when inflation rate was at 15.7 per cent.
The broad outlook for both the global and domestic economies in the medium-term remain clouded with uncertainties arising from the Russian-Ukraine war, lingering impact of the COVID-19 pandemic and substantial disruptions to the supply chain.
While the latest MPR is expected to adjust the supply of money in the economy and promote real Gross Domestic Product (GDP) growth, the implication for the manufacturing sector is increased level of interest rates on loanable funds.
Chief Executive Officer for Centre for the Promotion of Private Enterprise (CPPE), Muda Yusuf said that the tightening will only worsen the plight of entrepreneurs or those in production in the economy.
“Because many of them are indebted to the bank, it will mean they will review the credit and so it will go higher for those investors and it is not going to have an impact on inflation.
“This economy is not a credit driven economy and there is no way you can use monetary policy issues to solve these challenges.
“So, what they have done is create problems for investors who are battling with exchange rate, high cost of diesels, scarcity of foreign exchange, purchasing power among others,” Yusuf said.
Higher interest rate will also put pressure on input cost which will in turn cause business production to decline, and may lead to lay-offs and aggravate unemployment rate pegged at 33 per cent and worsen insecurity.
Director General of the Manufacturers Association of Nigeria, Segun Ajayi-Kadri, noted that the increase in MPR would lengthen the journey towards the preferred single digit interest rate regime.
“MAN is, therefore, concerned about the ripple effects of this decision and its implications for the manufacturing sector that is visibly struggling to survive the numerous strangulating fiscal and monetary policy measures and reforms,” Ajayi-Kadri said.
However, MPC members believe that tightening will signal a strong determination of CBN to aggressively address its price stability mandate and portray the emphasis on sensitivity to the impact of inflation on the vulnerable households and the need to improve their disposable income.
Members also called on the Federal Government to seek a long-term and viable solution to strike a balance between the pricing and supply of Premium Motor Spirit (PMS) in the country and do more to increase food supply in order to check food inflation.