Adedokun Waliyu 
The World Bank has said there is a possibility that the monetary policy tightening by the Central Bank of Nigeria (CBN) will not address the ravaging inflation in the country.
The World Bank made the disclosure in its global economic prospects report released on Wednesday.
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It said one of the risks of Nigeria’s economic growth is the failure of tightening policies on inflation.
The tightening of the monetary policy rate (MPR) is the increase of interest rate to control soaring inflation.
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Pundits say when interest rates are high, manufacturers, contractors, among others, find it difficult to borrow, and by implication, low productivity occasioned by job losses.
Since the resumption of the Monetary Policy Committee (MPC) meeting this year, interest rates have increased from 22.75 per cent in February to 26.25 per cent in May – a total increase of 750 basis points.
‘Risks to Nigeria’s growth outlook are substantial’
The World Bank in its latest report noted that: “Risks to Nigeria’s growth outlook are substantial, including the possibility that the tightening of monetary policy stops short of reining in inflation.”
The report also predicted Nigeria’s economic growth rate outlook for the rest of 2024 and 2025 to remain the same. “Growth in Nigeria is projected to pick up to 3.3 per cent this year and 3.5 per cent in 2025,” the World Bank said.
“After the macroeconomic reforms’ initial shock, economic conditions are expected to gradually improve, resulting in sustained, but still-modest growth in the non-oil economy.
“In addition, the oil sector is expected to stabilise as production somewhat recovers”, it stressed.
Aggressive interest rate squeeze will further depress economy — MPC members
The CBN Deputy Governor in charge of Financial System Stability Directorate, Philip Ikeazor, has also argued that given the poor contribution to growth and vulnerability to rate hikes of the oil and manufacturing sectors of the economy, consecutive aggressive tightening of interest rate will further depress the economy.
He made the statement in his personal statements as an MPC member at the 151st MPC Meeting of March 25 – 26, 2024.
Ikeazor said that: “The pressure point is already manifesting, as indicated in the projected contraction of PMI in the industrial sector by 7.1 index points occasioned by rising input cost and low-capacity utilisation.”
Another member of the MPC, a senior fellow and director of the Africa Growth Initiative in the Global Economy and Development Programme at Brookings, Aloysius Uche Ordu, in his statement, emphasised that hiking interest rates impact consumer spending and business investments, as reflected in the composite purchasing managers’ index in February 2024.
He argued that substantive progress in addressing the supply-chain issues and other cost-push factors is needed to minimise the risk that inflation might remain high for long, adding that such an outcome will make life difficult for Nigerians and damage the functioning of the economy.
“To allow higher inflation to become entrenched in people’s expectations would make it much more expensive to reduce later through even higher interest rates, larger output losses and higher unemployment,” he said.
The concerns of Ikeazor were further highlighted by CBN Governor and Chairman of the MPC, Olayemi Cardoso in his personal statement when he argued that, “If such a hyperinflationary scenario is to become reality, available options to control inflation could be severely constrained.”
Cardoso noted that the facts presented to the MPC clearly indicate that the monetary factors contributing to inflation are diminishing in significance.
Reacting to the report of the World Bank, Professor of Finance and Capital Market, Uche Uwaleke, said: “I have been saying it: aggressive rate hike is inappropriate in situations where inflation drivers are largely due to supply-side factors and structural bottlenecks.
“In the case of Nigeria, the pressure point is on food with the food index accounting for over 50 per cent of headline inflation.
“To deal with the elevated food inflation, the fiscal authority has more roles to play especially with respect to addressing insecurity, transport challenges and climate change. These factors are exogenous to the CBN”, He said that the CBN should recognize that the challenge currently facing the Nigerian economy is not just inflation, but stagflation and to this end, should equally have regard to growth concerns in future meetings of the MPC.
Apex bank needs to define the limits of rate hikes- Dr Yusuf
Dr Muda Yusuf, the Chief Executive Officer, Centre for the Promotion of Private Enterprise, in his submission, said: “My view is that we need to be careful about it. We can’t dismiss it entirely because the Central Bank has a role to play in managing inflation.
“Real sector investors are grappling with high costs of diesel, logistics, transportation, and all manner of taxation problems, regulatory issues, and exchange rate depreciation.
“On top of that, you now have this additional problem of increasing the cost of funds; it can be a suffocating situation for businesses. So, that is why the CBN also needs to define the limits of rate hikes. Fighting inflation is the collective responsibility of the monetary and fiscal authorities.
“I’m not saying that the CBN should completely be aloof, but it should not also go to the extreme of making life extremely difficult for operators in the economy.
“Right now, with the latest tightening, the prime lending rate will be 27–28 per cent. That’s the rate for prime customers with high credit ratings. So, you can now imagine the rate at which SMEs will be paying for funds — you are talking about between 30-35 per cent.
“So, if you have that kind of situation, what business can you do in this economy to give you a return of 30 per cent, even a return of 25 per cent? What business? I can’t think of any.”
