Nigerians are reacting to the hawkish move by the Central Bank of Nigeria to tame the rising rate of inflation, which rose to 20.52% in August.
The Monetary Policy Committee of the CBN yesterday, voted unanimously to raise the benchmark interest rate (monetary policy rate) to 15.5% from 14%, being the third hawkish move by the apex bank in 2022 and the highest in the last 20 years.
Apart from reining in inflation, the development is expected to increase the cost of credit as well as the yield of government fixed securities, while the CBN will continue to use the CRR to mop up liquidity in the financial sector.
Nairametrics sought the views of Nigerians who had a mixed reaction to the CBN move and here is what they are saying:
What Nigerians are saying
On Twitter, @lilianogwurumba, while referring to the hike by the CBN said, “Too late. You should have started this increase in 2020 when our inflation started spiking. Instead, u were dropping the MPR, and deposit rates came to almost 0, causing a run on Naira, which exacerbated the FX rise and is further worsening inflation.”
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Too late Oga. You should have started this increase since 2020 when our inflation started spiking. Instead u were dropping the MPR and deposit rates came to almost 0, causing a run on Naira which exacerbated the FX rise and is further worsening inflation. Mumu!
@king_jaydave said It’s not as if the inflation is caused by too much money in circulation so why adopt the policy of increasing interest rate? In the last 2 years CBN has increased MPR 3 times yet no solution, isn’t that enough reason for Emefiele to find another solution to fixing the inflation
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It’s not as if d inflation is caused by too much of money in circulation so why adopting d policy of increasin int rate?In d last 2yrs cbn has increased mpr 3tyms yet no solution isn’t dat enuf reason 4 emefiele to find anoda solution to fixing d inflation😤dz gov is clueless asf
Alexas58 on social media noted that the move agreed with the CBN would help curb inflation and help raise the Naira. He noted, “The game is between demand and supply! The naira will fall against the dollar soon and continue dropping low, although, it might take years to reach 500.
Meanwhile, some Nigerians believe that the method used by the CBN may not be effective because of the complexity of the economy, regulatory laxity, and corruption.
Gambojimeta pointed out that in advanced countries, increased interest rate causes business and people to reduce their spending as they also need that money to service their debt obligations, as such, there is less money chasing few products. This helps slow down demand and also brings about a fall in prices of commodities; hence, reducing inflation
He said, “In the US, Canada, and other advanced countries, the economy is overheated; plenty of jobs, people have lots of money to spend, economies opening up too fast, so more money chasing fewer goods since there were supply chain issues because of Covid.
“But we don’t have the same in Nigeria, unemployment is extremely high, people don’t have lots of money, the Nigerian economy is not opening up because of Covid, the Nigerian economy is not heating up, but he is increasing interest rate anyway. The only reason I could think of is because of the exchange rate. Dollar is getting higher so it’s being done to make buying the dollars less attractive. Perhaps, this will only apply to a few people in Nigeria as not many people in Nigeria buy dollars anyway, aside from those that school abroad or businessmen dealing with foreign export and import.”
Also, some Nigerians opined that the whole forex issue was birthed by the CBN itself in its bid to regulate the bureau de change market.
T2luv1 noted, “Before CBN stopped supplying forex to the bureau de exchange, Naira black market rate was at N495 while the official exchange window was at N421. After he stopped the Bureau de Change supply of Forex, the Naira black market rose to N705 while the official exchange window has risen to N431. The CBN created this artificial inflation and to combat this what he has proposed is an increase in interest rate. The question is, how many people are impacted by the interest rate in Nigeria as compared to the Naira exchange rate?
@FinPlanKaluAja1 wrote, usually, to fix inflation, you raise the interest rate than inflation. The problem is Nigeria’s inflation is caused by low output of goods, not just monetary expansion. Thus, ignore inflation temporarily and boost production. The CBN alone can’t do this.
@Oluseg1in1 noted, “The problem with this is that we don’t have consumer loans. So it won’t tame inflation, it will only tame production as 80% of Nigerian borrowers are producers, not consumers. Our inflation is cost-push, mostly imported nothing to do with goods scarcity.”
The last time the apex bank maintained an interest rate higher than 15% was in 2002, bringing the current rate of 15.5% to a 20-year high.
Interest rates are a major tool used by monetary policy regulators to manage liquidity in the economy and tackle rising inflation rates. However, a high-interest rate regime has also been seen to be detrimental to economic growth.