As the Central Bank of Nigeria’s Monetary Policy Committee (MPC) prepares to meet next week Monday, experts have warned that pegging the interest rate above the current 16.5% may rattle the economy with serious consequences, especially for the manufacturing and banking sectors.
According to the experts, Nigeria’s interest rates are among the highest in the world, and at the current MPR, the numbers are beginning to look good.
Interest rate is already high: Dr. Muda Yusuf, the CEO of the Center for the Promotion of Private Enterprise (CPPE), said Nigeria’s monetary policy rate is already high in Nigeria.
“So, except you want to squeeze the banks out of existence, there is no reason to increase the rates further. He said Nigeria’s rates are among the highest in the world. Banks are paying so much for diesel; the exchange rate problem is there. So, if you compound their problem by increasing the interest rate that would not be fair at all. So, if they cannot relax the rate they should just leave it like that because it is tight enough” Yusuf stressed.
CBN should retain the current rate: Johnson Chukwu, the CEO of Cowry Assets Management Limited, said the CBN should retain the current rate because there has been a slight reduction in the inflation rate from 21.47% to 21.34%.
“So the important thing is that there should not be any further increase in interest rate given that we are beginning to see a moderation in the inflation rate, and we have seen a level of stability in the exchange rate,” he said.
He added that the focus should be to sustain some level of economic growth. He said if he were on the committee he would push for maintaining the current rate because any further increase would worsen the state of the economy, especially the real sector.
He further noted that the economy is still fragile. So, no measures should be taken at this point where the parameters have reversed. “Inflation has reversed; so no measures should be taken to jeopardize the economy.”
Need to consider recession: Moses Igbrude, the national coordinator-elect of the Independent Shareholders Association of Nigeria, said it is noteworthy that the IMF has alarmed that at least a third of the population of the world will sink into recession in 2023; as such, the CBN, as a matter of responsibility, must do what is needed to ensure that Nigeria’s interest rates are competitive.
Igbrude said if the rate is increased, it will further increase the cost of borrowing, which will, in turn, ultimately increase inflation in the country. He said the ongoing transition to a cashless economy may have an impact on the rate of inflation, which would be worth the wait of the CBN before increasing or decreasing the rate.
The CBN should thread cautiously: An economist at Cashlinks Trust, Philip Obi, said if the official interest rate is lower than the rate of inflation which currently stands at 21.34%, it would negate the CBN’s effort to rein in inflation since there would be no incentive to invest in securities that would yield less than the rate of inflation.
He however cautioned that the economy is in a mini transition so there is no need to cause any panic in the economy by changing the rates. Obi said he expects the CBN to thread with caution by maintaining the current rate.
He stated that by increasing the MPR, it would be more expensive to borrow money for investment, thereby increasing the cost of goods and services. He also stated that increasing the MPR may discourage investors from borrowing money, thereby slowing economic growth.