The Lagos Chamber of Commerce and Industry (LCCI) has advised the Central Bank of Nigeria (CBN) to take additional measures outside interest rate hike to tackle inflation.
The Director-General, LCCI, Dr. Chinyere Almona, stressed the need for a corresponding boost to supply side factors of inflation to accompany the monetary policy instruments.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) raised interest rate from 13 to 14 per cent in response to the surging inflation rate of 18.60 per cent of June.
The CBN retained the asymmetric corridor of the MPR at +100 / -700 basis point, the Cash Reserve Ratio (CRR) at 27.5 per cent and liquidity ratio at 30 per cent.
Almona said that supply side factors like foreign exchange scarcity, insecurity, rising costs of fuels and weak infrastructural support for production must be addressed.
She, however, posited that CBN rate hike was seen to be a necessary option considering that many other economies were raising rates for the same reason of taming inflation.
According to her, a comparatively low interest rate could make the country’s portfolio assets less attractive to asset buyers and offshore investors.
This, she said, could make the economy suffer from massive capital flight with a negative effect on the exchange rate.
The Central Bank of Nigeria (CBN) had at the last MPC meeting called on the federal government to prioritize ending insecurity in the country.
The MPC had called on the Federal Government to prioritize efforts to curb the menace of insecurity to enable farming and other business activities return to normalcy.
The CBN was equally advised “to continue its support to increase food supply in a bid to addressing food inflation”.
MPC members lamented “the upward price pressure, particularly on transportation, resulting from the prolonged scarcity of Premium Motor Spirit (PMS) and called on the Federal Government to seek a long-term and viable solution to strike a balance between the pricing and supply of PMS in Nigeria”.
Members also noted that the 150 basis points hike by the Committee in May 2022, “had not permeated enough in the economy to halt the rising trend in inflation”.
As a result, “the month-on-month percentage point increase in headline inflation rose sharply in June 2022 compared with May 2022”.
Member of the MPC Professor Micheal Obadan told The Nation that “because of the nature of the current inflation challenge, the hike in MPR is aimed at stemming excess liquidity through the demand side while the supply-side measures implemented through the development finance interventions will continue”.
The rate hike he said “targets greater saving rather than spending and stemming borrowing to finance unnecessary consumption as well as putting pressure on the foreign exchange market”.
“At the same time, it’s expected that the legacy drivers of inflation such insecurity, high energy costs, infrastructure deficits will be addressed to reduce their impact on food inflation. In other words, implementation of complementary measures will make the MPR to work faster and better” he said.
Going forward, Professor Obadan noted that what Nigerians should expect to see “is gradual deceleration of the inflation rate and reasonably stable prices of goods and services”.
“Hence, real incomes/purchasing power will be protected. Ultimately, standards of living should improve with lower and stable prices”.
On whether or not the hiked MPR will stifle real sector growth, the MPC member said that “policies have trade-offs with respect to outcomes. At this point in time, the priority of the Monetary Authorityvis inflation control”.
“But it’s not neglecting the real sector. Real sector operators still have access to dedicated cheap real sector support funds to grow their businesses and support growth and employment”.
Reacting to the interest rate hike as a measure of addressing inflation, Dr. Tope Fasua an economist told The Nation that the MPC “did that in response to rising inflation rate. Whether this inflation rate is going to come down is a different ball game entirely because since they moved from 11.5 percent to 13 percent what we’ve seen is consistent rise in inflation rate which is now at 18.6 percent”.
He projected that “inflation rate will continue to go up because it’s a multi dimensional phenomenom and has now become a global challenge.”
“There is global inflation and the world is kind of bracing up for maybe another global reccession some of this comes from the effect of COVID19”.
According to him, “the dislocation of COVID is what I see not only that production is more expensive, those who are producing including retailers are having to buy their raw materials at higher prices”.
Fasua noted that, “in Nigeria we have the COVID intervention scheme contributing from the demand side, and from the supply side increased cost of production in every ramification including increased importation given the fact that we are still an import economy so it’s going to take a while for this to clear up”.
He argued that “while you increase rate, you’re slowing growth, you’re asking companies not to expand, not to employ, not to initiate new ideas and I think in a country like ours what we need is more growth than inflation targeting however we also can not just watch inflation to keep going”.
Fasua advised the Central Bank “to keep tweaking the few instruments at it’s disposal until it gets comfortable. So it’s an active work the central bank has to keep doing”.
Almona noted the gloomy outlook of the global economy which has a direct link to our domestic economy with pass through effects of imports.
“The persistent war in Ukraine and other disruptive factors may present as risks into the end of the year.
“Tightening of rates may have been a good decision by the MPC as that was necessary to tame the rising inflation rates in the past months,” she said.
Almona urged the CBN to maintain its targeted intervention schemes for agriculture, manufacturing/industries, energy, infrastructure, healthcare, exports, and Micro, Small, Medium Enterprises (MSME).
She stressed that development finance loans should be targeted at the MSMEs.
