New CBN interest rate will worsen inflation, Experts give reasons
What experts say about new CBN interest rate?
Some financial professionals are concerned that the new CBN interest rate will worsen inflation.
On Wednesday, economic experts expressed their concerns in light of the recent decisions of the Central Bank of Nigeria’s Monetary Policy Committee (MPC).
What is the new CBN interest rate?
The MPC raised the lending interest rate by 50 basis points, from 17.5% to 18%, at its 290th meeting on Monday and Tuesday.
The committee raised the MPR, which was the economy’s baseline lending rate, for the sixth time in a row.
Muktar Muhammed, a financial analyst, believes that a rate hike is not necessary right now due to the naira shortage and the damage it has caused to the economy.
Mr Muhammed claimed that inflation was already high and that raising interest rates, combined with a lack of cash, would harm the economy.
“The challenge with Nigeria is not only that we are dealing with single-digit inflation; we are also dealing with inflation that is driven by three major factors.”
“The factors are the microeconomic environment, demand and supply, and production.” As a result, we will require a comprehensive approach that cannot be saved solely by raising interest rates,” he said.
The expert suggested that the central bank consider the cost of borrowing when making monetary policy decisions.
“In terms of microeconomic stability, we need to start looking at borrowing costs if lower borrowing costs are going to help combat inflation.”
“Also, in terms of production costs, we will begin to investigate the power sector and the high cost of energy.”
“On the demand and supply side, you know that a lot of goods are being imported into this country, and we are still dealing with exchange rate volatility.”
“Inflation cannot be solved with a single tool; it must be addressed holistically, particularly in the areas of production, cost of doing business, and microeconomic stability, which is related to borrowing, particularly for startups,” he said.
According to Okechukwu Iwegbu, a financial expert, the increase in MPR will have a negative impact on the economy.
Mr Iwegbu, a former president of the Chartered Institute of Bankers of Nigeria (CIBN), believes the rate increase will make it difficult for people to raise capital for their businesses.
“The inflation rate, which is the primary reason the committee raised the MPR, will not subside.” Other factors, such as taxation, should be considered by the MPC.
“The tax rate is significant because Nigeria has multiple taxes, ranging from the Federal Government to state and local governments.” Almost every government agency collects taxes.
“Taxes should be harmonised in order to bring many more Nigerians into the tax net.” “This will have a greater impact on the economy,” he said.
Professor Uche Uwaleke, a Capital Markets professor at Nasarawa State University, Keffi, stated that the MPC was still concerned about rising inflation and currency market pressures.
Mr. Uwaleke stated that this was in light of the committee’s primary mandate of preserving price stability.
“However, given the significant drop in currency in circulation caused by the currency redesign policy, I had expected the MPC to maintain a hold position.”
“The negative impact of recent cash shortage on productive activities, as well as the end of election season, should have provided justification for a hold position,” he said.
The professor, on the other hand, believes that the 50-basis-point increase in the MPR signals to financial markets that the CBN has begun the process of rate-hike pause.
“I anticipate that policy tightening will come to a halt at the next scheduled MPC meeting in May.”
“This is required to stimulate economic activity and create job opportunities,” he explained.
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